Courtesy of Mish.
ECB Denies it is Blackmailing Greece
Yesterday, Mario Draghi Hit Back at QE Hawks and denied the ECB was blackmailing Greece.
Critics of QE, such as Bundesbank president Jens Weidmann and the head of the Dutch central bank, Klaas Knot, argue the policy, which helps lower the cost of borrowing for member states, will allow countries such as France and Italy to shirk unpopular reforms.
The ECB president told lawmakers it was “very dubious” that a fall in the cost of borrowing for member states automatically weakened the appetite for structural reforms. He said: “Do you really think a high level of interest rates would form an incentive for a government to improve its education system, or judiciary, or electoral system?”
Mr Draghi denied accusations that the ECB was blackmailing Greece. “The ECB has €104bn of exposure to Greece. This is equal to 65 per cent of Greek GDP, which is the highest exposure in the eurozone,” he said. “So what sort of blackmail is this?”
The denial follows the leaking of a letter from Greek prime minister Alexis Tsipras to German chancellor Angela Merkel. In the letter, Mr Tsipras called for the ECB to reintroduce a waiver that would allow Greek banks to use their sovereign’s debt as collateral to secure cheap loans from the central bank’s regular auctions.
Screws Tighten
Today, the Wall Street Journal reports ECB Tells Greek Banks Not to Boost Exposure to Athens Government’s Debt.
The European Central Bank has instructed Greece’s biggest banks to refrain from increasing their exposure to Greek government debt, according to people familiar with the matter.
The move raises pressure on the cash-strapped government in Athens to find an agreement with its international creditors to unlock billions of euros in bailout funds.
The new restriction from the ECB’s bank supervisors, which was approved by the central bank’s governing council, was conveyed to the Greek banks in a letter on Tuesday.
It is in line with recent policies undertaken by the ECB to restrict the amount of funding the Greek government can obtain by selling Treasury bills.
Last month, the ECB suspended an exemption that had allowed Greek banks to post junk-rated government bonds as collateral for cheap ECB loans through its regular lending operations. That forced Greek banks to rely on an emergency lending program through the Greek central bank that carries a higher interest rate.
Greece Out of Cash by April 20
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