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ECB acts on Greece

February 5, 2015

Asian and European stocks plus the euro have handed back earlier gains, following the ECB's decision to adopt a tough stance on Greece. The country's debt will no longer be accepted as collateral for loans.

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Greek flag and euro coins dpa - Bildfunk+++
Image: picture-alliance/dpa/U. Deck

Shares listed on Asia's stock exchanges and the euro took a tumble Thursday morning in response to the European Central Bank's announcement it would adopt a hard line on Greece's debt. The Greek stock market plunged by more than 9 percent in early trading.

Investors' risk appetite had earlier warmed on hopes that Athens would gain relief from its international creditors, but then took a hit after the ECB abruptly pulled back its soft treatment, saying that as of February 11 it would no longer allow Greek banks to use government debt as collateral for loans.

Once implemented, that move will deprive the eurozone nation's lenders of a key source of much-needed fresh cash to get the economy back on its feet again.

Tough times ahead

"Suspension is in line with existing rules, since it is currently not possible to assume a successful conclusion of the program review," the ECB said in a statement, referring to the terms of the Greek 240-billion-euro ($270-billion) bailout.

Greek debt has had junk status before, but because of Greece's dire economic situation and commitments by the former government to adhere to a long-term austerity program the country had nevertheless been granted a waiver as to how its debt was treated.

But the new leftist government, including Finance Minister Yanis Varoufakis, has been seeking support from the ECB to restructure Greece's debt through a special bond-swapping program.

The ECB's answer was unambiguous, meaning time's now running out for Greece as the European portion of its rescue package is due to expire at the end of the month. Failure to negotiate an extension is bound to lead to a messy bailout exit, with the prospect of state bankruptcy looming large.

hg/pad (dpa, Reuters, AFP)