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Greek debt: Frankfurt strikes back
The European Central Bank has excluded Greek bonds from its QE programme, while Germany's finance minister pours cold war on an early deal. Are things about to collapse?
Germany's Wolfgang Schuble said they "agreed to disagree". Yanis Varoufakis said that they hadn't.
The European Central Bank has excluded Greek bonds from QE, while Germany's finance minister has poured cold war on an early deal. Are things about to collapse? Matthew Partridge investigates.
What's going on?
While they have bounced back a bit, they are still down around 10% (at the time of writing). The interest rate on three year Greek bonds also shot up to 20% increasing borrowing costs.
How does the liquidity scheme work?
However, since the ECB wants to reduce the risk of losing money, it won't accept assets rated below investment grade', popularly known as junk bonds'. Until now, they have allowed Greek debt, even though it doesn't meet these criteria. It has now suddenly changed the rules so that Greek debt is now excluded.
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However, the decision sends a signal that the ECB is growing impatient with Greek attempts to significantly renegotiate its debts. It justified the decision by the fact that "it is currently not possible to assume a successful conclusion of the programme review".
In other words, it thinks there is a risk that Greece it could end up defaulting and leaving the euro.
So, what do the Greeks want?
He also argues that the Greek government should be allowed greater fiscal freedom, with an end to the supervision by the Troika" of the ECB, EU and IMF. Overall, he argues that European leaders should respect the "mandate" that he has been given by Greek voters, as a result of last month's election.
Are they likely to get this?
At the press conference, Wolfgang Schuble said that the two side had only "agreed to disagree", while Varoufakis stated that they hadn't even agreed that!
Overall, the significance is that Greece is now seeking a bridging loan that will enable it to survive until May, suggesting that it thinks that an immediate deal is unlikely.
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