Sunday

22nd May 2022

ECB ratchets up pressure on Greece

  • Draghi shows little mercy on Greece (Photo: ec.europa.eu)

In a surprise move, the European Central Bank on Wednesday night (4 February) said it will no longer accept Greek bonds as collateral for loans, giving Athens a week to reach an agreement with international creditors or face serious cashflow problems.

Under the eurozone bank's rules, junk-rated bonds cannot be accepted as collateral. But Greek banks were nevertheless able to access cheap ECB loans under an exemption linked to the troika-overseen bailout programme.

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This waiver will be annulled from 11 February onwards because the ECB does not think Greece will reach a deal with its creditors by the end of the month, when an extension of the bailout expires.

“Suspension is in line with existing Eurosystem rules, since it is currently not possible to assume a successful conclusion of the programme review," the ECB said in a statement.

The ECB board however kept the "emergency liquidity assistance" (ELA) programme for Greek banks - which is routed through the Greek central bank and at higher interest rates than the direct lending from the ECB.

But the Frankfurt bank reviews the ELA system every two weeks to decide whether to continue it, giving the ECB further leverage over Greece.

The ECB's decision came after the new Greek finance minister, Yanis Varoufakis, met with ECB chief Mario Draghi and said he had "fruitful" talks with the Italian central banker.

Varoufakis on Thursday is expected in Berlin for talks with his German counterpart, Wolfgang Schaeuble, who insists that the only way out of the conundrum is to stick to the reforms already implemented, rather than annulling privatisations and rolling back labour law reforms as the new Greek government has pledged to do.

Greek stocks and the euro fell after the ECB statement, erasing gains made in the previous hours and days when positive signals from Rome, Paris and Brussels indicated there might be a deal in sight soon.

The ECB was not expected to act before the end of the month, when the bailout extension expires. The previous Greek government, unable to agree with the creditors before elections, obtained the two-month extension in December.

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