Greece’s government bonds and shares tumbled today (February 5th) after the European Central Bank (ECB) announced it would not accept Greek bonds as collateral for its liquidity operations.
In Athens, the stock market fell more than six per cent, while bank stocks tumbled as much as 16 per cent. Greek three-year note yields increased 1.7 percentage points to 18.02 per cent this morning in London. The ECB said that its move was because it could not assume a "successful" deal on Greece's €240 billion (£179 billion) bailout.
The decision will raise financing costs for the nation’s banks, adding to pressure on the newly-elected government. "This is clearly a warning shot," Christian Lenk, a fixed-income analyst at DZ Bank AG in Frankfurt, told Bloomberg. "It’s certainly showing that the ECB is not willing to let the new Greek government go ahead the way it was planning to go."
Banks can still access funding through the Emergency Liquidity Assistance (ELA) programme, run by Greece's central bank. According to Greek newspaper Kathimerini, the interest rate is 1.55 per cent, compared with 0.05 per cent on regular ECB financing.
Investors are now awaiting the next encounter between finance minister Yanis Varoufakis and his German counterpart Wolfgang Schaeuble in Berlin later today. Prime minister Alexis Tsipras promised to reverse five years of spending cuts and renegotiate the country's debt.
Greece is due to receive the final tranche of its loans from the troika on February 28th. The Greek government said they would refuse that final $8 billion (£5.2 billion) instalment unless Greece could get more equitable conditions that would allow it to reduce austerity measures and start spending again.