EUROZONE-GREECE/BANKS-ECB Greek banks in focus after ECB stops accepting its bonds

Record ID: 565851

  • Title: EUROZONE-GREECE/BANKS-ECB Greek banks in focus after ECB stops accepting its bonds
  • Date: 5th February 2015
  • Summary: ATHENS, GREECE (FEBRUARY 4, 2015) (REUTERS) VARIOUS OF ATHENS MAIN SQUARE AND PEOPLE WALKING IN SQUARE VARIOUS OF BANK OF GREECE VARIOUS OF PEOPLE AT ATM MACHINES AT NATIONAL BANK VARIOUS OF PIRAEUS BANK VARIOUS OF PEOPLE AT ATMS AT EUROBANK VARIOUS OF PEOPLE AT ATM MACHINES AT ALPHA BANK ATHENS, GREECE (RECENT) (REUTERS) VARIOUS OF INTERIOR OF ATHENS STOCK EXCHANGE
  • Embargoed: 20th February 2015 12:00
  • Keywords:
  • Location: Greece
  • Country: Greece
  • Topics: General
  • Reuters ID: LVA1CEUHYAU3671FQ157GM5KKJXG
  • Story Text: Greece's economy remained heavily in focus on Thursday (February 5) after the country's finance ministry said its banking system was protected through its access to emergency liquidity assistance (ELA) available from the domestic central bank, after the European Central Bank (ECB) said it would stop accepting Greek bonds in exchange for funding.
    The ECB abruptly cancelled its acceptance of Greek bonds in return for funding on Wednesday (February 4), shifting the burden onto Athens' central bank to finance its lenders and isolating Greece unless it strikes a new reform deal.
    The move, which means the Greek central bank will have to provide its banks with tens of billions of euros of additional emergency liquidity in the coming weeks, was a response to what many in Frankfurt see as the Greek government's abandoning of its aid-for-reform programme.
    The Greek finance ministry said the ECB's decision puts pressure on the Eurogroup to reach a deal that would be "mutually beneficial" for both Athens and its eurozone partners.
    The ECB's decision came just hours after Greece's new finance minister Yanis Varoufakis emerged from a meeting with ECB President Mario Draghi to claim that the ECB would do "whatever it takes" to support member states such as Greece.
    In stark contrast, the ECB move, which required the support of a majority of central bank chiefs across the euro zone, shows widespread dismay with the new Greek government's plans not only in Frankfurt but across the 19-country bloc.
    It means that the tens of billions of euros of Greek government bonds as well as bank bonds guaranteed by Athens will no longer qualify as security in return for ECB funding to those banks.
    Instead, it will now be up to Greece's central bank to provide those banks with Emergency Liquidity Assistance (ELA), a step it takes at its own risk, ringfencing those banks' funding problems from the rest of the euro zone.
    Were the central bank to run into difficulties as a result, it would be up to the debt-strapped Greek government, which can ill afford it, to step in.
    The unexpected move followed an appeal from Greece's new leftist government to the ECB to keep its banks afloat as it seeks to negotiate debt relief with its euro zone partners.
    The ECB has now effectively refused this request, adding to Greece's problems as Germany rejected any roll-back of agreed austerity policies.
    Two Greek banks had already begun to tap emergency liquidity assistance from the Bank of Greece after an outflow of deposits accelerated after the victory of the hard left Syriza party in a general election on Jan. 25, banking sources had told Reuters.
    Greece's bailout from the euro zone runs out at the end of February.
    Unless it is formally extended, Athens will not receive a final aid tranche of 1.8 billion euros or be eligible to seek a further easing of euro zone loan conditions.
    The new government of leftist Prime Minister Alexis Tsipras has so far said it has no intention of requesting an extension and wants to scrap the 240 billion euro bailout programme and the intrusive international supervision that goes with it.
    Without some kind of euro zone backing, Athens is unlikely to be able to finance itself on the market at sustainable rates.
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