ECB toughens stance on Greece as finance ministers meet

Greek and German ministers to meet after ECB cut funding to Greek banks, raising pressure on Athens to bow to austerity.

Yanis Varoufakis
Greece's Finance Minister Yanis Varoufakis is set to hold his first talks with German Finance Minister Wolfgang Schaeuble [AP]

Greece’s new finance minister is due to meet his German counterpart, a day after the European Central Bank (ECB) piled fresh pressure on Athens by cutting off Greek banks’ access to a key source of much-needed cash.

Yanis Varoufakis will hold his first talks on Thursday in Berlin with German Finance Minister Wolfgang Schaeuble, whose country is seen as the strongest opponent of any easing in the terms of the massive debts Greece has built up.

The ECB’s decision to no longer allow Greek banks to fund themselves through government debt, which has a junk rating, as collateral for loans will likely feature heavily in their talks.

The ECB’s move, which means the Greek central bank will have to provide its banks with billions of euros of additional funds in the coming weeks, was a response to what many see as the Greek government’s abandoning of its austerity programme, to which the previous the government was committed.

Counting the Cost – Greece: The debt challenge

Far left-wing Syriza party, which promised to renegotiate Greece’s debt with its creditors, came out victorious in the general elections on January 25.

The party, which won seats just short of a single-party government, has formed a coalition with the small right-wing Independent Greeks party.

The ECB’s decision came just hours after Varoufakis emerged from a meeting with ECB President Mario Draghi to say 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 eurozone, shows widespread dismay with the new Greek government’s plans not only in Germany, but across the 19-country monetary bloc.

ECB sees no ‘successful’ deal

The ECB announced its decision, which will take effect from February 11, after its governors met in Frankfurt on Wednesday.

The bank said that the move was taken since it could not assume a “successful” deal on Greece’s $270bn bailout.

The Listening Post – Greece: Syriza, austerity and the media

The ECB 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 eurozone partners.

The ECB has now effectively refused that request, adding to Greece’s problems as Germany rejected any roll-back of agreed austerity policies.

Athens says these restrictions have choked growth in an economy that has shrunk by a quarter, failed to cut unemployment that stands at over 25 percent, and made it impossible to service a mountain of debt worth 1.75 times its annual economic output.

But German Chancellor Angela eurozone tried to squash talk that Syriza could play on divisions within Europe, insisting that there were no substantial differences between major eurozone nations.

Source: News Agencies