Monday

10th May 2021

ECB to tighten noose on Greek government

  • Athens: The ECB is to ban Greek banks from increasing their holdings of Greek government debt (Photo: and641)

The European Central Bank is set to make it illegal for Greek lenders to increase their purchases of short-term government bonds in a move that will tighten the funding noose on the Greek government.

The decision, which has reportedly been formalised in a letter sent on Tuesday (March 24) to Greek authorities, the Financial Times reports, comes just two days after the bank’s president Mario Draghi rejected suggestions that the bank was effectively blackmailing Greece by making it tougher for its cash-strapped government and banks to access ECB funding, during a European Parliament hearing on Monday.

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“We are not creating rules for Greece .... we are simply using existing rules. Greek bonds are below the normal level of collateral,” said Draghi.

The rationale for the ban is that it will help break the link between the indebted Greek government and its fragile banking sector which currently hold around €11 billion of treasury bills issued by their government.

But the move starves Alexis Tsipras’ Syriza government of an important source of cash at a time when the country is believed to be within weeks of running out of money to pay its bills.

A loan repayment is due to the International Monetary Fund on 9 April, followed by two treasury-bill repayments of around €2 billion the following week.

Many have questioned the ECB’s decision in February to withdraw a waiver that allowed Greek banks to access its cheap loans using government bonds and government-guaranteed assets as collateral, after Tsipras’ left-wing government halted the implementation of Greece’s bailout programme, promising to renegotiate it.

Deposits have been flowing out of Greek banks since December. Savers removed more than €25 billion from Greek bank accounts in January and February dropping bank deposits to their lowest level since 2005, and are withdrawing funds at a rate of €1.5 billion per week. The capital flight has made banks increasingly reliant on the ECB’s emergency liquidity assistance programme.

Elsewhere, on Tuesday, former finance minister George Papaconstantinou was found guilty of removing relatives' names from a list of potential Greek tax evaders.

The list of over 2,000 Greek bank account holders in Swiss branches of HSBC was passed by Christine Lagarde, the chief executive of the International Monetary Fund who was then France’s finance minister, back in 2010, earning the sobriquet ‘the Lagarde list’.

However, despite causing outrage at a time when Greece was facing bankruptcy and chronic tax evasion by its wealthy, successive governments were accused of doing little to investigate the list of accounts, which were said by Papaconstantinou to be valued at €1.5 billion.

Papaconstantinou, who was expelled from the once dominant centre-left Pasok party in 2012, received a one-year suspended prison sentence and will escape jail.

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Greece could be forced to resort to Cypriot-style capital controls in a bid to prevent depositors taking their money out of the country, the chairman of the Eurogroup has warned.

Analysis

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The general view amongst commentators and analysts is that Greece needs an agreement with its creditors by mid-April to prevent a default.

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Deposits held by Greek banks have fallen to their lowest level in a decade, according to statistics released on Friday by the European Central Bank.

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