ECB cuts loan funds to Greece by pulling plug on government bonds

Greece’s access to vital loans has been squeezed after the European Central Bank (ECB) stopped accepting the government’s bonds as collateral. The ECB had been accepting the junk-rated bonds, but in a statement said it was changing its mind because of uncertainty over Greece’s bailout commitments. The country’s new leaders are currently jetting around Europe trying to renegotiate their $270bn bailout package and ease austerity obligations. Greece’s prime minister, Alexis Tsipras (pictured above) wants to change the terms of the existing arrangement, which expires at the end of the month.

By reaching and announcing this decision, the European Central Bank is exerting pressure on the Eurogroup to swiftly pursue a new and mutually beneficial agreement between Greece and its partners.

Greek financial ministry statement

It comes as Greece’s finance minister, Yanis Varoufakis, is in Berlin for key talks with German counterpart Wolfgang Schaeuble. Germany is seen as the strongest opponent of easing Greek debt and wants the country to stick to the existing agreement. Austerity measures, imposed in exchange for the bailout loans, have seen the Greek economy shrink by a quarter and unemployment rise to over 25%. The government is being pressured to sell off ports, airports and other assets to pay back what it owes. If a new deal cannot be hammered out Greece could default on its debt and crash out of the euro currency union.

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.

Bundesbank chief Jens Weidmann

Politics Greek debt