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Greece Meets Setback in European Bailout Talks E.C.B. Move Is Setback to Greece on Debt Relief
(about 11 hours later)
FRANKFURT — Greece’s efforts to renegotiate its bailout suffered a serious setback on Wednesday when the European Central Bank shut off a major source of lending for the country’s troubled financial institutions.FRANKFURT — Greece’s efforts to renegotiate its bailout suffered a serious setback on Wednesday when the European Central Bank shut off a major source of lending for the country’s troubled financial institutions.
The central bank decided that it would no longer accept Greek government bonds as collateral for loans, saying that it was not confident the country could meet its bailout requirements. The move raises the stakes for Greece, indicating that the European Central Bank, at least, is not prepared to bend its rules to accommodate the country’s newly elected government.The central bank decided that it would no longer accept Greek government bonds as collateral for loans, saying that it was not confident the country could meet its bailout requirements. The move raises the stakes for Greece, indicating that the European Central Bank, at least, is not prepared to bend its rules to accommodate the country’s newly elected government.
It is also a blow to the country’s hard-pressed banks, which have used their holdings of Greek government bonds to borrow from the central bank at a cheap interest rate of 0.05 percent. Now Greek banks, facing signs of a capital flight, will have to rely on emergency cash from another program.It is also a blow to the country’s hard-pressed banks, which have used their holdings of Greek government bonds to borrow from the central bank at a cheap interest rate of 0.05 percent. Now Greek banks, facing signs of a capital flight, will have to rely on emergency cash from another program.
As they met with European leaders and policy makers on Wednesday, Alexis Tsipras, the new Greek prime minister, and his finance minister, Yanis Varoufakis, were hoping to build support for an anti-austerity plan for the beleaguered country. They also wanted to persuade the E.C.B. to continue backing emergency funding to some of Greece’s largest banks.As they met with European leaders and policy makers on Wednesday, Alexis Tsipras, the new Greek prime minister, and his finance minister, Yanis Varoufakis, were hoping to build support for an anti-austerity plan for the beleaguered country. They also wanted to persuade the E.C.B. to continue backing emergency funding to some of Greece’s largest banks.
Their tour was an opportunity for the new leftist leaders and the major figures in eurozone politics to size up one another and stake out positions before negotiations that are likely to take weeks if not months. Eurozone leaders used the meetings to tutor the relatively inexperienced Greeks in the complexities of European politics and the constraints that the new government faces financially and politically.Their tour was an opportunity for the new leftist leaders and the major figures in eurozone politics to size up one another and stake out positions before negotiations that are likely to take weeks if not months. Eurozone leaders used the meetings to tutor the relatively inexperienced Greeks in the complexities of European politics and the constraints that the new government faces financially and politically.
Mr. Tsipras and Mr. Varoufakis seemed to be doing their best to come across as responsible, reasonable people, but determined to strike a better deal for their suffering countrymen.Mr. Tsipras and Mr. Varoufakis seemed to be doing their best to come across as responsible, reasonable people, but determined to strike a better deal for their suffering countrymen.
“Our goal is to respect the people’s sovereignty in Greece and the clear mandate of our people — at the same time we respect the rules of the European Union,” Mr. Tsipras said at a midday news conference in Brussels with Martin Schulz, the president of the European Parliament.“Our goal is to respect the people’s sovereignty in Greece and the clear mandate of our people — at the same time we respect the rules of the European Union,” Mr. Tsipras said at a midday news conference in Brussels with Martin Schulz, the president of the European Parliament.
“We want to recorrect this framework — not to smash this framework,” Mr. Tsipras said, apparently referring to European Union rules underpinning the eurozone.“We want to recorrect this framework — not to smash this framework,” Mr. Tsipras said, apparently referring to European Union rules underpinning the eurozone.
Mr. Varoufakis met with the president of the E.C.B., Mario Draghi, hours before the bank’s policy-setting body discussed the emergency loans to Greek lenders. The central bank’s governing council did endorse giving Greek banks access to funds under a program known as Emergency Liquidity Assistance. Approval of the emergency funds was seen as a near-certainty because without it some Greek banks might fail, precipitating a crisis that could infect other countries.Mr. Varoufakis met with the president of the E.C.B., Mario Draghi, hours before the bank’s policy-setting body discussed the emergency loans to Greek lenders. The central bank’s governing council did endorse giving Greek banks access to funds under a program known as Emergency Liquidity Assistance. Approval of the emergency funds was seen as a near-certainty because without it some Greek banks might fail, precipitating a crisis that could infect other countries.
But beginning on Feb. 11, banks will no longer be able to use their holdings of Greek government bonds to borrow at more favorable rates. Previously, Greek debt had been exempt from rules prohibiting poorly rated bonds from being used as collateral. While the decision applies to all banks in the eurozone, it will hit Greek banks hardest because of their large holdings of their own country’s debt.But beginning on Feb. 11, banks will no longer be able to use their holdings of Greek government bonds to borrow at more favorable rates. Previously, Greek debt had been exempt from rules prohibiting poorly rated bonds from being used as collateral. While the decision applies to all banks in the eurozone, it will hit Greek banks hardest because of their large holdings of their own country’s debt.
In its decision, the central bank suggested it had lost confidence in Greece’s ability to meet the terms of its bailout set by other European countries and the International Monetary Fund, which include spending limits, sale of state assets and steps meant to improve the performance of the economy. The decision “is based on the fact that it is currently not possible to assume a successful conclusion of the program review,” the E.C.B. said in a statement.In its decision, the central bank suggested it had lost confidence in Greece’s ability to meet the terms of its bailout set by other European countries and the International Monetary Fund, which include spending limits, sale of state assets and steps meant to improve the performance of the economy. The decision “is based on the fact that it is currently not possible to assume a successful conclusion of the program review,” the E.C.B. said in a statement.
The central bank also barred Greek bonds as collateral in 2012 after the country negotiated a write-down of some of its debt. The central bank began accepting the bonds again after new bailout terms were reached. That experience suggests that if Greece negotiates a new program, the central bank would accept the bonds again.The central bank also barred Greek bonds as collateral in 2012 after the country negotiated a write-down of some of its debt. The central bank began accepting the bonds again after new bailout terms were reached. That experience suggests that if Greece negotiates a new program, the central bank would accept the bonds again.
In a statement, the Greek Finance Ministry said the E.C.B.’s decision “puts pressure on the Eurogroup to proceed quickly to a new mutually beneficial agreement between Greece and its creditors,” referring to the group of eurozone finance ministers.In a statement, the Greek Finance Ministry said the E.C.B.’s decision “puts pressure on the Eurogroup to proceed quickly to a new mutually beneficial agreement between Greece and its creditors,” referring to the group of eurozone finance ministers.
The ministry concluded that the Greek government “is widening daily its circle of negotiations with partners and institutions to which it belongs, remains steady on its goals of social salvation which the Greek people approved with their vote and is consulting with the aim of designing a European policy which will definitively end the self-fueling crisis of the Greek social economy.”The ministry concluded that the Greek government “is widening daily its circle of negotiations with partners and institutions to which it belongs, remains steady on its goals of social salvation which the Greek people approved with their vote and is consulting with the aim of designing a European policy which will definitively end the self-fueling crisis of the Greek social economy.”
The E.C.B. did not comment on the meeting between Mr. Draghi and Mr. Varoufakis earlier in the day. The Greek finance minister said outside the central bank headquarters afterward that he and Mr. Draghi had held “a very fruitful discussion” and “established an excellent line of communication.”The E.C.B. did not comment on the meeting between Mr. Draghi and Mr. Varoufakis earlier in the day. The Greek finance minister said outside the central bank headquarters afterward that he and Mr. Draghi had held “a very fruitful discussion” and “established an excellent line of communication.”
Mr. Varoufakis said he had told Mr. Draghi of “our government’s utter and unwavering determination that it can’t possibly be business as usual in Greece.”Mr. Varoufakis said he had told Mr. Draghi of “our government’s utter and unwavering determination that it can’t possibly be business as usual in Greece.”
The finance minister also said Greece would demand changes in the bailout program, which has been “fueling a debt deflationary crisis in our nation, thus causing a major humanitarian crisis.” Still, he said the meeting “gives me a great encouragement for the future.”The finance minister also said Greece would demand changes in the bailout program, which has been “fueling a debt deflationary crisis in our nation, thus causing a major humanitarian crisis.” Still, he said the meeting “gives me a great encouragement for the future.”
A person with knowledge of the discussion, who spoke only on the condition of anonymity because the meeting was confidential, said that Mr. Draghi had explained the rules that the central bank must operate under and urged the new government to engage “constructively and speedily” with the eurozone group of finance ministers “to ensure continued financial stability.”A person with knowledge of the discussion, who spoke only on the condition of anonymity because the meeting was confidential, said that Mr. Draghi had explained the rules that the central bank must operate under and urged the new government to engage “constructively and speedily” with the eurozone group of finance ministers “to ensure continued financial stability.”
The Greek leaders face an enormous challenge to persuade the rest of Europe to back away from the budgetary rigor that Germany, the biggest contributor to the bailout, insists upon. So far there is every sign that Mr. Tsipras will need to commit his country to further reform — and probably accept an extension of the current bailout program — if he is to win any of the debt relief that he has pledged to deliver.The Greek leaders face an enormous challenge to persuade the rest of Europe to back away from the budgetary rigor that Germany, the biggest contributor to the bailout, insists upon. So far there is every sign that Mr. Tsipras will need to commit his country to further reform — and probably accept an extension of the current bailout program — if he is to win any of the debt relief that he has pledged to deliver.
Leaders in Brussels, Berlin and Paris are making every effort to start a dialogue with Mr. Tsipras to avoid Greece becoming the first country to leave the euro. Such an outcome could effectively break apart the single currency union and usher in a period of greater economic instability if investors turn on other members of the eurozone with weak economies.Leaders in Brussels, Berlin and Paris are making every effort to start a dialogue with Mr. Tsipras to avoid Greece becoming the first country to leave the euro. Such an outcome could effectively break apart the single currency union and usher in a period of greater economic instability if investors turn on other members of the eurozone with weak economies.
After meeting with Mr. Tsipras in Brussels on Wednesday morning, Donald Tusk, the president of the European Council, which represents national leaders of European Union member governments, said that any negotiations over financial assistance for Greece would take place within the Eurogroup.After meeting with Mr. Tsipras in Brussels on Wednesday morning, Donald Tusk, the president of the European Council, which represents national leaders of European Union member governments, said that any negotiations over financial assistance for Greece would take place within the Eurogroup.
“They will be difficult” and will require “cooperation and dialogue as well as determined efforts by Greece,” Mr. Tusk, a former prime minister of Poland, said.“They will be difficult” and will require “cooperation and dialogue as well as determined efforts by Greece,” Mr. Tusk, a former prime minister of Poland, said.
Mr. Varoufakis continued on to Berlin later on Wednesday for a meeting scheduled for Thursday morning with Wolfgang Schäuble, the German finance minister. Mr. Varoufakis said he was “extremely eager” to meet with Mr. Schäuble, whom he called “the intellectual force behind the project of European Monetary Union.”Mr. Varoufakis continued on to Berlin later on Wednesday for a meeting scheduled for Thursday morning with Wolfgang Schäuble, the German finance minister. Mr. Varoufakis said he was “extremely eager” to meet with Mr. Schäuble, whom he called “the intellectual force behind the project of European Monetary Union.”
Angela Merkel, the German chancellor, said in Berlin that she was looking forward to meeting Mr. Tsipras next week at a meeting of European Union leaders in Brussels. But she said it was up to Greece to make proposals.Angela Merkel, the German chancellor, said in Berlin that she was looking forward to meeting Mr. Tsipras next week at a meeting of European Union leaders in Brussels. But she said it was up to Greece to make proposals.
“Now is really the moment,” Ms. Merkel said, “when Greece must say exactly what its ideas are.”“Now is really the moment,” Ms. Merkel said, “when Greece must say exactly what its ideas are.”