Tags: Greece | Bailout | ECB | Bailout

Greece Plays Down ECB Move on Cash Line for Its Banks

Thursday, 05 Feb 2015 09:30 AM

Jittery investors dumped Greek shares Thursday after the European Central Bank tightened the screws on the country's banking system, in a move that piles pressure on the new anti-austerity government to swiftly conclude a compromise deal with bailout creditors.

Shares on the volatile Athens stock exchange dived nearly 10 percent on opening, but later recovered a bit and were trading 5.5 percent down at midday. The interest rate on Greece's 10-year bonds also ratcheted 0.63 percentage point higher to 10.42 percent, in a further sign that investors are concerned about the new government's ability to quickly conclude a debt deal with its creditors.

On Thursday in Berlin, Greek Finance Minister Yanis Varoufakis — who is touring European capitals — is meeting with his German counterpart, Wolfgang Schaeuble. As well as being the biggest European contributor to Greece's five-year bailout program, Germany is a staunch proponent of the strict fiscal discipline that led to deep income cuts in Greece, amid record-high unemployment and an economic depression.

Their talks come just hours after the ECB said it would stop lending to Greek banks using the nation's junk-rated government bonds as collateral. The ECB justified the move by saying prospects appear uncertain for a new deal between the radical left government in Athens and its international bailout creditors. Greek banks retain access to emergency lending, but at a higher cost and subject to ECB approval.

"It is difficult to see this as anything other than a very aggressive move by the ECB," said Gary Jenkins, chief credit strategist at LNG Capital.

Prime Minister Alexis Tsipras' 10-day-old government played down the impact on Greece's banking system and insisted that it would stick to its anti-austerity agenda. It said the ECB ruling put pressure on Athens and its creditors alike to strike a deal.

Tsipras' radical left Syriza party has pledged to seek forgiveness for most of Greece's debt pile, water down budgetary surplus targets Greece has committed to under its 240 billion euro bailout agreements, restore slashed minimum wages and rehire sacked civil servants.

Government spokesman Gavriil Sakellaridis said Greece is not using blackmail in its bid to win over bailout creditors — its eurozone partners and the International Monetary Fund — but "will not be blackmailed" either.

"Greece desires, and is determined to seek, a mutually beneficial solution," he told private Mega TV.

VTB Capital Research analyst Neil MacKinnon said it seemed unlikely that the Greek government would cave in.

"(The ECB decision) will certainly harden the stance of those in the Greek government who see the EU as imposing draconian penalties on the Greek economy," he said. "This backdrop just ends up raising the probability of Greece exiting monetary union."

Berenberg Bank analyst Christian Schulz said the ECB decision dealt a severe blow to Greece's negotiating position ahead of the talks in Berlin.

"Schaeuble is likely to highlight to Varoufakis that Greece cannot breach the conditions under which it received bail-out funds so far, which includes the labor reform and public sector lay-offs that Syriza now wants to reverse, and that there will be strings attached to any new money as well," he said.

A complete cutoff from the ECB, including a refusal of more emergency credit, could pull the plug on Greek banks, leaving the government with no other source of funds to rescue them except for printing a new national currency. However, analysts say the ECB will be reluctant to make such a move unless politicians have exhausted all their options for a compromise.

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Jittery investors dumped Greek shares Thursday after the European Central Bank tightened the screws on the country's banking system, in a move that piles pressure on the new anti-austerity government to swiftly conclude a compromise deal with bailout creditors.
Greece, Bailout, ECB, Bailout
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2015-30-05
Thursday, 05 Feb 2015 09:30 AM
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