After Tuesday's downgrade of Portuguese debt by Moody's, the European Central Bank (ECB) today said that it will suspend minimum collateral rules for Portuguese debt in ECB refinancing operations.
A lender's axiom is that borrowers deemed to be greater credit risks must put up more collateral.
As a result of the debt downgrade, ECB rules dictated that Portugal should now be seen as a greater credit risk and must put up more collateral in order to refinance debt. Unfortunately, more collateral is something that Portugal doesn't have.
Facing an inconveient situation, the ECB did the bureaucratic thing. It changed the rules.
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