European Central Bank toughens its stance on Greece

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European Central Bank toughens its stance on Greece

5th February, 2015 : 

The European Central Bank (ECB) has toughened its stance with Greece by restricting financing to the country’s banks.

In a statement, the central bank said it would no longer accept Greek government bonds as collateral for lending money to commercial banks.

The move makes access to cash more expensive for Greece’s banks.

The ECB said the suspension came as it could not assume a “successful” deal on Greece’s €240bn (£179bn) bailout.

European Central Bank toughens its stance on Greece
European Central Bank toughens its stance on Greece

The newly-elected Greek government is in talks with international creditors over the terms of its bailout, which it thinks are too harsh.

The Greek finance ministry said the ECB’s decision, which is due to come into effect on 11 February, would have “no adverse impact” on the country’s financial industry.

It said the sector was “fully protected” with other options still available.

‘Get a deal’

Banks can still access funding through the Emergency Liquidity Assistance (ELA) programme, run by Greece’s central bank, and at a much higher cost to the banks.

According to the Greek newspaper Kathimerini, the interest rate is 1.55%, compared with 0.05% on regular ECB financing.

Earlier on Wednesday, Greek Finance Minister Yanis Varoufakis, met the ECB’s president Mario Draghi to discuss the country’s bailout.

Analysts said the ECB statement was a sign the meeting had not been a success.

“This is clearly the ECB signalling to the Greek government: You’re going to have to talk to [international lenders] the troika and get a deal,” Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics told the Associated Press.

“Otherwise, really bad things are going to happen.”

The euro fell sharply against the dollar on the news, dropping more than a cent to $1.1331.

Mr Varoufakis is due to meet his German counterpart, Wolfgang Schaeuble, on Thursday, one of the toughest critics of the new Greek government.

 

Source: BBC

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