Thursday, 5 February 2015

ECB excludes Greece from 1.2tr euro spending plan

The European Central Bank has said it will not accept Greek government bonds as collateral as of February 11. The bank has until now waived a rule that allows it to accept only top-rated bonds because Greece was in a fiscal adjustment programme jointly overseen by the ECB, European Commission and International Monetary Fund. That waiver was due to expire on February 28, when Greece's programme ends; but Greece on January 30 said it no longer wished to meet with ambassadors of the so-called troika of creditors.

The most powerful implication of yesterday's move is that Greece will not be eligible for 1.2tr euros' worth of bond and asset purchases at a rate of 60bn per month per month, announced by the ECB in January.

The second implication is that is undermines the liquidity of Greek banks. They have, in the past, presented the government paper in their portfolios to borrow from the ECB and keep themselves afloat.

Wednesday's decision should not affect the liquidity of Greek banks in the short term, because they have reduced their Greek bond purchases and have instead issued state-guaranteed bank bonds as collateral for ECB money. The ECB decision also allows Greek banks to continue to draw liquidity from the Greek central bank.

At the end of last year, Greek banks had borrowed 63.23bn euros from the ECB and another 9.79bn from the Bank of Greece. Bank of Greece governor Yiannis Stournaras is due to travel to London next week, in a likely attempt to attract financing from outside the Eurozone.

Wednesday's decision comes ahead of Greece's finance minister Yianis Varoufakis' meeting with his German counterpart, Wolfgang Scheauble, on Thursday morning. It appears to strengthen Germany's hard line towards Greece throughout the crisis. Berlin has insisted on tough spending cuts and economic reform.

The German government issued a statement on Wednesday saying that it expected the Greek government to retract post-election promises to reverse some austerity measures. It wants talks with Varoufakis to resume on the basis of a 48-page memorandum of measures that were being considered by the last government. The ruling Syriza party, which came to power on January 25, has said that it rejects those measures. It issued a statement in response to that of Germany's on Wednesday, saying that to capitulate to Berlin's demands would amount to an annulment of the election result.

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