The ECB announced its decision to withdraw a waiver allowing banks to use Greece’s junk-rated debt as collateral at 9:36 p.m. Wednesday in Frankfurt. The ruling will raise financing costs for Greek banks and stiffen oversight by the central bank. Greece’s Finance Ministry said the decision doesn’t reflect any negative developments in the financial sector and that banks are “adequately capitalized and fully protected.”
The ECB hadn’t publicly signaled that it would take such action so soon.
On Jan. 8, the central bank said it would continue the waiver on the assumption that Greece would conclude a review of its current bailout program, which expires Feb. 28, and negotiate another one. But days after taking office, Varoufakis said he was willing to take his chances without a bailout deal because the demands to cut spending were too onerous and had damaged the economy too much.
The Greek government opted to “stop cooperating with the troika,” ECB Governing Council member Jens Weidmann said in a speech in Venice on Thursday.
A Bank of Greece spokesman said that liquidity will continue as normal, as existing ECB financing will be converted into Emergency Liquidity Assistance, or ELA. The official asked not to be named in line with policy and declined to answer all other questions.
ELA is priced at an annual interest rate of 1.55 percent compared with the current ECB refinancing rate of 0.05 percent, Bank of Greece Governor Yannis Stournaras said in an interview with Kathimerini newspaper in November.