The news that the ECB will only accept sovereign debt with an A- rating or higher as collateral for repurchase agreements and other collateral financing trades with commercial banks will help to instil fiscal discipline on member countries in the long-run. But Jean-Claude Trichet's clarification on ECB policy on collateral still leaves a number of questions unanswered.
A recent paper by Willem Buiter and Anne Sibert argues that current Eurosystem operational practices send "signals to the mar
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