ECB fires warning shot by refusing to accept Greek gov't bonds as collateral

The European Central Bank turned up the pressure on the government on Wednesday by lifting a waiver on Greek government bonds, which means that they can no longer be used by local lenders as collateral to borrow from Frankfurt.

The ECB had adopted a special provision to accept junk-rated Greek bonds as collateral but a meeting of its governing council decided late last night that this should no longer remain in place as Athens does not look set to complete the bailout program, which is due to expire at the end of the month.

?The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the program review and is in line with existing Eurosystem rules,? the central bank said in a statement.

This means that Greek banks would have to borrow through the more expensive Emergency Liquidity Assistance (ELA) program.

The decision came after talks between ECB President Mario Draghi and Finance Minister Yanis Varoufakis in Frankfurt.

The Greek government is hoping that by ensuring local lenders receive liquidity they will be able to buy the treasury bills Athens wants to issue to over the coming weeks. Greece also wants its lenders to raise the 15-billion-euro limit on T-bill issues but sources said that Varoufakis was told in Frankfurt that this would not possible.

?The president has clarified the ECB mandate and urged the new government to engage constructively and speedily with the Eurogroup to ensure continued financial stability,? an ECB source told Agence-France Presse.

?We outlined to him the main objective of this government, which is to reform Greece in a way that has never been tried before and with a determination that was always absent,? Varoufakis said...