Thursday

13th 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.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

“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.

Dijsselbloem: Greece might need capital controls

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

Greece's cash-flow crisis

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

Greek bank deposits hit decade low

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.

EU aims at 'zero pollution' in air, water and soil by 2050

The European Commission unveiled a plan to reduce pollution to levels that are no longer harmful to human health and natural ecosystems by 2050 - including reducing the number of premature deaths caused by air pollution by 55 percent.

News in Brief

  1. No EUobserver newsletter on Friday 14 May
  2. Germany stops Facebook gathering WhatsApp data
  3. Italy rebuts reports of EU deal with Libya
  4. MEPs demand EU states protect women's reproductive rights
  5. At least nine dead in Russia school shooting
  6. Bulgaria interim government appointed until July election
  7. German priests defy pope to bless same-sex couples
  8. New EU public prosecutor faults Slovenia

Stakeholders' Highlights

  1. Nordic Council of MinistersNordic Council enters into formal relations with European Parliament
  2. Nordic Council of MinistersWomen more active in violent extremist circles than first assumed
  3. Nordic Council of MinistersDigitalisation can help us pick up the green pace
  4. Nordic Council of MinistersCOVID19 is a wake-up call in the fight against antibiotic resistance
  5. Nordic Council of MinistersThe Nordic Region can and should play a leading role in Europe’s digital development
  6. Nordic Council of MinistersNordic Council to host EU webinars on energy, digitalisation and antibiotic resistance

Latest News

  1. EU aims at 'zero pollution' in air, water and soil by 2050
  2. French police arrest Luxembourg former top spy
  3. Vaccine drives spur better-than-expected EU economic recovery
  4. Slovenia causing headaches for new EU anti-graft office
  5. 'No place to hide' in Gaza, as fighting escalates
  6. EU chases 90m AstraZeneca vaccines in fresh legal battle
  7. Fidesz MEP oversees FOI appeals on disgraced Fidesz MEP
  8. Belgium outlines summer Covid relaxation plans

Join EUobserver

Support quality EU news

Join us