ECB turns up pressure on Athens by refusing Greek bonds

Move represents significant escalation of tensions between Frankfurt and Athens

Greek finance minister Yanis Varoufakis at the  European Central Bank headquarters in Frankfurt. The bank has lifted a waiver that allowed it to accept junk-rated Greek government bonds.  Photograph: Kai Pfaffenbach/Reuters

Greek finance minister Yanis Varoufakis at the European Central Bank headquarters in Frankfurt. The bank has lifted a waiver that allowed it to accept junk-rated Greek government bonds. Photograph: Kai Pfaffenbach/Reuters

 
Greece’s bid to secure a

new debt deal with international creditors received a serious setback last night after the European Central Bank announced it would no longer accept Greek bonds as collateral for loans.

In a statement, the ECB said it would lift the waiver that had allowed it to accept Greek government debt in exchange for ECB funding of Greece’s banks. The waiver, put in place under the Greek bailout, allowed the ECB to accept Greek government bonds, which are junk-rated, as collateral for cheap financing of the banks.

“The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules,” the ECB said.

The decision was announced hours after a meeting between Greek finance minister Yanis Varoufakis and ECB president Mario Draghi in Frankfurt yesterday. It marks a significant escalation of tensions between Frankfurt and Athens.

The decision means that Greek banks will be dependent on emergency liquidity assistance (ELA) which will be provided by the Greek central bank. A number of Greek banks have already requested ELA funding due to an outflow of deposits from Greek banks. The ECB can ultimately block the provision of ELA if a two-thirds majority supports the move.

Surprise move

The surprise move by Frankfurt increases the pressure on the new Greek government which has been lobbying EU institutions and European capitals this week for support for its planned renegotiation of its bailout arrangements.

Greece’s bailout programme is due to expire on February 28th, but the government of Alexis Tsipras has said it will not seek an extension but instead negotiate a new contract with its international lenders.

Mr Tsipras met the heads of the three main EU institutions in Brussels yesterday, before meeting French President François Hollande.

Despite sympathetic noises from Paris last weekend following Mr Varoufakis’s meeting with his French counterpart Michel Sapin, Mr Hollande yesterday emphasised the need to respect

“European rules, which are imposed on everyone,” while also pointing out that commitments had been made to states in relation to debt.

Meeting

The Greek finance minister is due to meet German finance minister Wolfgang Schäuble in Berlin today in the first official meeting between the new government in Athens and that of Angela Merkel.

The German Chancellor hinted that EU member states remain resistant to a new debt deal for Greece.

While Greek proposals for some form of debt swap are understood to be gaining some traction among euro zone partners, the Syriza-led government is struggling to convince lenders that a reversal of austerity measures implemented under the bailout programme is justifiable.

Around 80 per cent of Greece’s outstanding debt is owed to official lenders, mostly other European countries. While Germany is Athens’ largest creditor, French finance minister Michael Sapin said last weekend that France has a €42 billion exposure to Greece.

Meanwhile, Taoiseach Enda Kenny travels to Brussels today for meetings with European Commission president Jean-Claude Juncker and his counterpart at the European Council, Donald Tusk.

However, it is not anticipated that the Taoiseach will raise the issue of further debt concession for Ireland.