ECB Suspends Collateral Waiver on Greek Loans

        FRANKFURT--The European Central Bank on Wednesday said it would no longer accept junk-rated Greek government debt as collateral for regular central bank loans, dealing a major blow to the new government's attempts to rewrite the terms of its EUR240 billion bailout.
        The announcement came as officials across Europe raised pressure on the far-left government to come to terms with international creditors on the country's bailout program, and fanned fears that the divide between Athens and other European governments may be too wide to overcome.
        "It is currently not possible to assume a successful conclusion of the program review" for Greece, the ECB said in a statement.
        Krishna Guha, vice chairman of Evercore ISI, said: "This is consistent with our expectation that the ECB will take a hard line on Greece."
        The euro fell and gold rose after the ECB statement. The common currency traded at $1.1338, from $1.1424 earlier. Gold for April delivery, the most active contract, was recently at $1,271 an ounce, from $1,264.50.
        U.S. stocks faltered after the ECB news. The Dow Jones Industrial Average gave up a 116-point gain to end little changed, while the S&P 500 fell 0.4%.
        Because Greek government bonds are junk rated, and thus below the ECB's minimum threshold, Greek banks have relied on a waiver to post collateral for cheap ECB financing through the central bank's regular facilities, a critical lifeline for a banking sector battered by years of recession.
        Greek banks will still have access to funds through the ECB's emergency lending program. Under that facility, the credit risk of the loans stays on the books of the Greek central bank, and the loans carry a higher interest rate.
        The ECB's decision served as a rebuke of sorts to the far-left government installed last month in Greece, where the eurozone debt crisis erupted five years ago. On Wednesday morning, Greece's new finance minister, Yanis Varoufakis, met with ECB President Mario Draghi at the central bank's Frankfurt headquarters.
        After the meeting, Mr. Varoufakis said the two had a "fruitful" discussion and that he told Mr. Draghi the Greek government had "unwavering determination that it can't possibly be business as usual in Greece."
        For his part, Mr. Draghi "clarified the ECB's institutional mandate and urged the new government to engage constructively and speedily with the Eurogroup to ensure continued financial stability," said a person familiar with the discussions.
        The ECB first waived the collateral requirements for Greek public debt in May 2010, at the height of the country's debt crisis. The waiver was suspended twice in 2012, the first time during negotiations between Greece and private bondholders over a debt restructuring and the second time amid concerns that Greece wasn't staying on track with its bailout commitments.
        Write to Brian Blackstone at brian.blackstone@wsj.com
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        (END) Dow Jones Newswires

        February 05, 2015 03:30 ET (08:30 GMT)

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