The euro is trading higher today after falling sharply over one percent late yesterday following a decision by the European Central Bank (ECB) to lift its waiver that allowed junk status Greek bonds to be exchanged for liquidity from the ECB in Frankurt.
The Dow tumbled over 100 points yesterday on the news just before the closing bell but ended positive by 0.04 percent.
The ECB’s move to lift its waiver means that junk status Greek bonds can no longer be used as collateral to access liquidity in Frankfurt as of February 11th.
Greek banks are now faced with having to borrow from the more costly Emergency Liquidity Assistance (ELA) program run through the Bank of Greece.
Instead of getting loans from the ECB at a rate of 0.05 percent, they will have to pay a rate over 1.50 percent through ELA.
Greece’s banks are already weakened and under financial pressure as a result of the country’s economic problems.
On Wednesday the ECB rejected a request from Greece’s new anti-austerity government to keep Greek banks afloat while it seeks to negotiate debt aid from euro area group members.
Greece’s new anti-austerity government was hoping to secure ECB liquidity for Greek banks so they can in turn buy the Treasury bills that Athens wants to issue in the weeks ahead.
A request from Greece’s new finance minister Yanis Varoufakis to raise the €15 billion Treasury bill limit to €25 billion was also denied by Greece’s lenders.
Now if Greece’s banks collapse, it will be up to Greece’s cash poor government in Athens to rescue them instead of the ECB.
On January 25th Greece held a snap election and elected leftist Syriza party that gained control of Greece’s parliament in Athens running on a political platform that directly opposes the belt tightening austerity measures imposed from Greece’s main creditors, the Troika, consisting of the IMF, ECB, and the European Union that have approved a Greek bailout of €240 ($272 billion) to keep Greece solvent.
Athens has already received a two month bailout extension that ends on February 28th.
Syriza party leader Alexis Tsipras and Greece’s finance minister Yanis Varoufakis have been meeting with EU leaders and finance ministers during the past week across EU capitals to gain support for renegotiating the terms of Greece’s bailout package that eliminates austerity measures.
Although they were received more warmly in France and Italy where opposition to austerity has more political support, the two Greek leaders were unable to gain much needed support for a new negotiated bailout package and then faced a cooler welcome on Wednesday in Brussels and Frankfurt.
On Thursday Greece’s finance minister Yanis Varoufakis will be meeting with Germany Finance Minister Wolfgang Schaeuble in Berlin.
Schaeuble is one of the strongest critics of the anti-austerity platform that Greece’s new government represents and sentiment is running high in Germany to not allow Athens to water down its commitment to austerity and financial repayment of its bailout package.