Bloomberg 05/02/2015

The ECB made it clear yesterday that the suspension of Greek sovereign debt as eligible collateral was due to it having become impossible to assume a successful conclusion of the current Greek troika program review.

In order to get that certainty back, and allow Greek debt back on to the ECB collateral list, there either has to be a successful conclusion of the current review - the chances of which are approximately zero - or an agreement on a new program for Greece. A program is essentially a set of rules attached to a bailout.

In the press conference following his meeting with German finance minister Wolfgang Schaeuble this morning, Greek finance minister Yanis Varoufakis suggested that Greece should receive a bridging program until the end of May to allow the new Greek government time to finalize details of their program proposals. 

A short term bridging program would not be enough to make the ECB change its mind on collateral eligibility, but it would give time for politicians to come to an agreement on a longer term solution for Greece.

That bridging program would have to be agreed by all members of the euro area at the next Eurogroup meeting on February 16 in Brussels. 

Ahead of that Eurogroup meeting Varoufakis has very few allies he can rely on amongst euro area finance ministers, with only French finance minister offering public support for any new program.

If a bridging program can be agreed at the Eurogroup meeting, there will then be some months of difficult negotiation ahead for Greece and its lenders. With Varoufakis today saying that he did not even reach an agreement to disagree with Schaeuble, all parties still have a long way to go to reach the necessary common ground for a sustainable agreement.

Absent that agreement, Greek banks can continue to rely on ELA funding for the moment. (See an explainer here for how ELA works)

However, if there is a complete breakdown in negotiations, it is likely that the ECB will then take the view that the Greek banks will have become insolvent at that point, due to their holdings of Greek debt.

Were that to happen, Greece would find itself not enjoying the full benefits of euro membership.