ECB Piles The Pressure on Greece

        By Josie Cox
        The pressure on the new Greek government is being ramped up.
        On Wednesday evening the European Central Bank declared that it would stop accepting Greek bonds as collateral for central bank loans.
        "It is currently not possible to assume a successful conclusion" of Greece's current bailout, the ECB said, just hours after its president, Mario Draghi, met with the country's new finance minister, Yanis Varoufakis.
        Here's a quick look at how traders, economists and strategists are responding to the headlines.
        Nick Lawson, senior trader at Deutsche Bank:
        The first phase of the Greek "default without a default" has run into its first roadblock in the guise of an obdurate ECB. Withholding of liquidity may initiate a bank run (in reality, accelerate) which should focus the new Greek leadership's minds, though as they point out, Greece is already bankrupt. The outcome will require a change to the status quo or a rapid change in government. No solution can be swift or clean.
        Giuseppe Maraffino and Antonio Garcia Pascual, economists at Barclays:
        We interpret this decision by ECB's Governing Council to force Greek banks to a more expensive funding as a 'nudge' to the Greek government to speed up negotiations with the EU and announce soon an agreement on a program. On Feb 11, the euro area finance ministers will meet to discuss Greece followed by the meeting of Heads of State on Feb. 12. We would expect some clear signals of what the intentions of the Greek government and the EU are following those meetings.
        Gary Jenkins, Credit Strategist at asset manager LNG Capital:
        It is difficult to see this as anything other than a very aggressive move by the ECB. They did not need to do it now (they were expected to have to make a decision at the end of the month) and whilst they can claim that they are following their rules they have oft amended them during the crisis, as has the eurozone as a whole. After all, there are not supposed to be any bailouts.
        Whilst the most likely outcome is for some kind of compromise there still remains the possibility that Greece could end up defaulting and exiting the eurozone almost by accident as much as design. In order to avoid a default and an exit from the eurozone, the Greek politicians will have to moderate their position. Of course we do not know what their real objective was when they won power -- they might well have settled for some small alterations to the previously agreed program or maybe they really do want to leave the eurozone. I guess we are about to find out.
        Frederik Ducrozet, a senior economist at Crédit Agricole:
        The bottom line is that the ECB's decision is a risky, albeit calculated political move, pressuring the Greek government and eurozone policymakers to find an agreement within the next couple of weeks. It's a bad news in the sense that it goes against Greece's proposal to buy time in the negotiation process. In the end, the decision to pull funding has to be a political one, so even in the extreme case where there is no agreement by early March, we find it hard to imagine the ECB intentionally triggering a bank run.
        Simon Derrick, chief market strategist at BNY Mellon:
        While the ECB might have explained the early suspension of the use of Greek debt as collateral as being "in line with existing eurosystem rules, since it is currently not possible to assume a successful conclusion of the programme review," it was hard to ignore the fact that the move came just hours after a meeting between Mr. Draghi and Greek finance minister Yanis Varoufakis. In short then this seemed designed to send a very clear signal to the Greek government rather than anything else. The message itself is simple enough: there is little room for compromise in the upcoming negotiations.
        Peter Dragicevich, economist at Commonwealth Bank of Australia:
        This action removes the ability of the Greek commercial banks to use Greek government debt as collateral in return for low--cost ECB funding. That said, it is not likely that Greek banks will face immediate liquidity problems. Greek commercial banks will now have to access any funding requirements from the Greek Central Bank at a higher cost. Emergency Liquidity Assistance is extended by a national central bank of the euro area, in this case the Bank of Greece, to solvent lenders "facing temporary liquidity problems, without such operation being part of the single monetary policy."
        (END) Dow Jones Newswires

        February 05, 2015 03:29 ET (08:29 GMT)

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