Via the economics blog naked capitalism: ECB to Greece: Drop Dead. Excerpt:
Even by the standards of bank thuggishness, the move by the ECB against Greece last night was a stunner. Americans have become used to banks taking houses under dubious pretexts when both the investors and borrowers would do better with a writedown. But to see the ECB try to take a country is another matter entirely. As one seasoned pro said, “If anyone had tried something like this against a country with a decent sized military, the tanks would be rolling.”
The ECB’s bombshell was to put Greece at risk of an intensification of its ongoing bank run in order to pressure it to agree to a deal with the Troika under an impossibly tight timetable, even shorter than the February 28 pre-existing deadline that Greece Finance Minister Yanis Varoufakis had planned to extend until June.
As we’ve discussed at length previously, a longer negotiation timetable would be necessary to meet Greece’s objective of restructuring of the relationship with the Troika. Greece wanted that to be based on the recognition that Greece could never pay off its debts and that it was in both sides' interest to let Greece implement more growth-oriented policies. But the message from the enforcers at the ECB was unambiguous: Greece has no rights and needs to accept its debtcropper status.
The ECB has thus also effectively said that it would rather have fascists like Golden Dawn running Greece, which is what will eventually occur if it succeeds in breaking Syriza. It also just handed France’s Marine Le Pen, head of the nationalistic, anti-Eurozone Front National, fantastic fodder for her campaign.
The February 28 date was the result of Greece presumably needing access to so-called bailout funds to pay off an IMF obligation coming due. Varoufakis said he would refuse those funds, and could get by until June, when more loans came due, by relying on existing tax receipts and getting what he regarded as minor waivers from the central bank. He also had some creative ideas for restructuring Greece’s debts and said that he wanted the OECD rather than the Troika to provide auditors on behalf of the lenders.
Even though we warned that the ECB was likely to use its control over liquidity facilities to stymie Syriza’s plans and force Greece to the negotiating table sooner rather than later, the smackdown was even more brutal than we imagined possible. The press release contains these main elements:
1. The central bank will not allow Greece to pledge Greek government debt as collateral for ECB loans after February 11. The mechanism was the lifting of a waiver that the ECB had in place. This in theory will not have an impact on the banks, since they hold little in the way of Greek sovereign debt and in any event banks can still pledge Greek government debt for emergency lending purposes (note there has been misreporting on this issue). The immediate impact is to thwart Varoufakis’ plans to issue some additional short-term debt to carry Greece through June. Note that the ECB once briefly removed this waiver in 2012 when negotiations with Greece became fraught.
2. It stated that “it is currently not possible to assume a successful conclusion of the programme review.” This looks to be directed at Greece’s rejection of Troika bailout monitors.
3. It affirmed that Greek banks still have access to the emergency lending assistance, or ELA. But as we pointed out, that access is on a rolling two week basis. And now that Greece is officially on the ECB’s hit list, the renewal now becomes another choke point for Greece.