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 The ECB decision to stop accepting Greek bonds in return for funds
shifts the burden onto Athens' central bank to finance its lenders
and marks a big setback for the leftist-led government's attempt to
negotiate a new debt deal with its euro zone peers.
The Athens Stock Exchange FTSE Banks Index <.FTATBNK> plunged 22.6
percent at the open before recovering somewhat. Three-year
government borrowing costs leapt more than three percentage points
to nearly 20 percent, leaving Greece utterly shut out of the
markets.
"Greece does not aim to blackmail anyone but will not be blackmailed
either," A Greek government official said in a statement. "The ECB's
decision ... is an act of political pressure to quickly reach a
deal."
Finance Minister Yanis Varoufakis, who pleaded in vain with ECB
President Mario Draghi on Wednesday to keep funding Greek banks for
several months while Athens negotiates a debt deal, met German
Finance Minister Wolfgang Schaeuble on Thursday after Berlin set out
uncompromising terms for any further aid.
In a policy paper circulated to EU officials and seen by Reuters,
Germany said Greece must stick to the terms of the 240 billion euro
bailout negotiated by the previous government, and not roll back
planned privatisations and cuts in the minimum wage, pensions and
the public sector workforce.[ID:nL6N0VE4S3]
Greek banks have been given approval to tap an additional 10 billion
euros in emergency funding over an existing ceiling if necessary,
the Greek official said.
Prime Minister Alexis Tsipras and Varoufakis have spent the week
touring EU capitals trying to build support for a debt renegotiation
and an easing of austerity measures under the country's bailout
programme which both say they have no interest in extending beyond
the end of February.
They have found scant backing in Paris, Rome, Frankfurt or Brussels
even before Varoufakis's meeting with Schaeuble, the most hardline
euro zone finance minister.
European Commission Vice President Valdis Dombrovskis said Athens
must extend its bailout programme, due to expire on Feb. 28, to gain
time to negotiate a longer-term programme.
"In the European Commission's assessment the most realistic way
forward is to ... extend the duration of the programme for another
couple months or half a year," Dombrovskis told the Reuters Euro
Zone Summit.
The new Greek leaders have had a cool reception even in left-leaning
countries such as France and Italy which Athens had hoped would
support its case for debt relief.
French President Francois Hollande told a news conference the ECB
decision to restrict funding for Greece was legitimate and put the
onus on euro zone governments to hammer out a deal on the Greek debt
crisis, and on Athens to present reforms.
EMERGENCY ROOM
Two Greek banks had already begun to tap the more costly emergency
liquidity assistance from the Bank of Greece after an outflow of
deposits accelerated following the victory of the hard left Syriza
party in a Jan. 25 election, banking sources had told Reuters.
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The health of Greece's big banks is central to keeping the country
afloat.
The Greek Finance Ministry said the ECB decision put pressure on the
Eurogroup of euro zone finance ministers to reach a deal that would
be "mutually beneficial" for both Athens and its euro zone partners.
But while Varoufakis has called for time until May to agree some
form of debt swap, the ECB move tightened the screws on Athens to
accept an extension of the current bailout plan or reach a rapid new
arrangement.
Bundesbank chief Jens Weidmann said even emergency lending from the
Bank of Greece should be a short-term measure. That credit line can
be stopped if a two-thirds majority on the ECB Governing Council
vote to do so although such a decision would likely lead to the
collapse of Greece's financial system.
"ELA should only be awarded for the short term and to solvent
banks," Weidmann told business daily Boersen Zeitung in an
interview.
"As the banks and the state are closely bound in Greece, the
economic and fiscal policy course that the Greek government follows
plays an important role in this assessment," he said.
Speaking later in Venice, Weidmann demanded that countries bear the
consequences of their own fiscal decisions and warned that any move
to bail out a euro zone member could lead to the spread of doubts
about solvency.
With the Greek public determined to cast off the stigma of
supervision by a troika of EU, IMF and ECB inspectors, the semantics
of any new arrangement may be crucial.
A source familiar with the Greek position said after the talks with
Draghi: "We are thinking of a bridging programme. You may not call
it a 'programme' for political reasons but perhaps a contract."
Tsipras, 40, won power promising to negotiate a debt write-off,
reverse some key reforms and end budget cuts. At home, his poll
ratings are high and the media is extolling his stance but if he
fails to deliver, that may change.
(Writing by Mike Peacock and Paul Taylor; Editing by Peter
Millership and Giles Elgood)
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