Wednesday 24 January 2018

ECB turns screw on Greece as it brings forward ban on bonds

European Commission President Jean-Claude Juncker (R) welcomes Greek Prime Minister Alexis Tsipras (L) ahead of a meeting at the EU Commission headquarters in Brussels February 4, 2015.
European Commission President Jean-Claude Juncker (R) welcomes Greek Prime Minister Alexis Tsipras (L) ahead of a meeting at the EU Commission headquarters in Brussels February 4, 2015.

Andrew Trotman

The European Central Bank has increased the pressure on Greece by bringing forward a ban on the debt-stricken country using its bonds as collateral for cash.

Officials at the eurozone central bank has said a waiver that allowed Greece to swap its junk-rated debt for money would now expire on February 11, weeks earlier than the previous deadline of February 28. This sparked fears of a run on the Greek banks.

Stock markets fell sharply on the news, with the Dow Jones Industrial Average erasing all the gains it had made yesterday with a 0.8pc drop.

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

It came just hours after Greece's finance minister, Yanis Varoufakis, and Mario Draghi, the ECB president, met in Frankfurt.

Mr Varoufakis, who is due to meet his German counterpart Wolfgang Schaueble today, declared himself in charge of a "bankrupt country" and declined the offer of yet more loans from European creditors or financial assistance from Russia.

He also compared his country to a jobless worker with a mortgage.

"Would you give him another loan so he can make payments on his house? That cannot work. I'm the finance minister of a bankrupt country!" Mr Varoufakis told Germany's Die Zeit newspaper.

On the back of successful meetings in the UK and France, Mr Varoufakis is set for talks with his German counterpart about renegotiating the terms of Greece's €240bn bailout agreement in Berlin.

The finance minister struck a hopeful tone after talks with European Central Bank chief Mario Draghi in Frankfurt yesterday, claiming the ECB "would do whatever it takes to support the member states in the eurozone".

"I presented [Mr Draghi with] our government's utter and unwavering determination that it can't possibly be business as usual in Greece," Mr Varoufakis told reporters.

Greece's new leaders also called on the ECB to allow Athens to issue short-term Treasury bills in a bid to keep the country's banks afloat for the next three months.

Without this source of emergency funding there is a possibility Greek banks could collapse, potentially forcing the country out of the eurozone.

"The European Central Bank should support our banks so that we can keep ourselves above water by issuing short-term government bonds," said Mr Varoufakis.

But Syriza's initial demands for a cancellation of a portion of its debt have been categorically rejected by Brussels, forcing the new government to put forward an alternative plan to lower its repayment burden through a series of debt swaps. These could include replacing its emergency loans with bonds linked to the country's economic growth.

The finance minister also called on Germany's Chancellor to put forward a "Merkel Plan" for Greece, based on the post-war Marshall loans granted by the United States to rehabilitate Europe after the war.

Fears of an impasse saw investor demand for Greece's Treasury bills slump to an eight-year low yesterday.

Irish Independent

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