Rude awakening for Greek hopes as ECB refuses to accept debt as funding collateral

 
Julian Harris
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Greek PM Alexis Tsipras met with EU leader Jean-Claude Juncker yesterday
The new Greek government was left with a bloody nose last night after Eurozone central bankers abruptly scrapped their acceptance of the ailing Mediterranean country’s debt as collateral for funding.

Syriza – Greece’s radical left-wing anti-austerity party – has spent this week sending its leaders on a charm offensive across Europe, confidently expecting to negotiate a new deal over its mammoth debts.

Markets had climbed since Monday as Europe’s leaders appeared to give Syriza a warm welcome – but last night stocks tanked after the European Central Bank (ECB) signalled a more aggressive stance towards Greece.

With markets in Europe closed, the S&P 500 in New York ended down 1.6 per cent, while the Dow Jones finished higher but with its gains pared.

The euro was also knocked down. Having traded at $1.153 earlier in the day, the single currency was printing $1.133 late last night.

The ECB’s move means that Athens’ own central bank must finance the country’s lenders, isolating Greece from the rest of the bloc. The decision reflects a belief in Frankfurt that Greece’s new government is turning its back of the country’s bailout programme.

Earlier in the day Greece’s maverick finance minister Yanis Varoufakis met with ECB boss Mario Draghi. The meeting had appeared to go well, as had talks between Greek PM Alexis Tsipras and European Commission President Jean-Claude Juncker. Yet the ECB published its blunt verdict just hours later.

The ECB action will take effect from next Wednesday, 11 February.

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