Greek banks hammered after ECB snub, Athens rejects 'blackmail'

By George Georgiopoulos & John O'Donnell

Greek borrowing costs leapt and bank shares were hammered on Thursday after the European Central Bank abruptly pulled the plug on its funding for the country's financial sector in what Athens labelled an act of coercion.

The ECB decision to cancel its acceptance of Greek bonds in return for funding shifts the burden onto Athens' central bank to finance its lenders and marks a further setback for the government's attempt to negotiate a new debt deal with its eurozone peers.

The Athens Stock Exchange FTSE Banks Index plunged 22.6 percent at the open before recovering somewhat.

Three-year government borrowing costs leapt more than three percentage points to nearly 20 percent, leaving Greece utterly shut out of the markets.

"Greece does not aim to blackmail anyone but will not be blackmailed either," A Greek government official said in a statement. "The ECB's decision ... is an act of political pressure to quickly reach a deal."

Greek banks have been given approval to tap an additional 10 billion euros (8 billion pounds) in emergency funding over an existing ceiling if necessary, the official said.

Greek Prime Minister Alexis Tsipras and his finance minister, Yanis Varoufakis, have spent this week touring EU capitals hoping to build support for a debt renegotiation and an easing of austerity measures under the country's bailout programme which both say they have no interest in extending beyond the end of February.

They have found little or no backing in Paris, Rome, Frankfurt or Brussels and on Thursday Varoufakis meets Germany's Wolfgang Schaeuble, the most hardline euro zone finance minister.

European Commission Vice President Valdis...