ECB bans use of Greek government debt as collateral for loans

The European Central Bank has banned the use of Greek government debt as collateral for loans, in a sign of intensifying tensions between Athens and its international creditors.

"The Governing Council decision is based on the fact that it is currently not possible to assume a successful conclusion of the programme review and is in line with existing Eurosystem rules," the ECB said in a statement tonight. It is expected that the bank may still sanction the provision of emergency liquidity assistance - a separate form of liquidity - to Greece's banks.

The move followed a meeting between Greek finance minister Yanis Varoufakis and European Central Bank president Mario Draghi in Frankfurt today. Mr Varoufakis travels to Berlin tomorrow for talks with German finance minister Wolfgang Schauble, as German chancellor Angela Merkel hinted that European Union member states remained resistant to a new debt deal for Greece.

“I don’t think that the positions of the member states within the euro area with regard to Greece differ, at least in terms of substance,” the chancellor said today in Berlin.

The meeting will be the first encounter between the new Greek government and the government of Angela Merkel since Syriza swept to power in a general election 10 days ago.

Greek prime minister Alexis Tsipras continued his diplomatic offensive on Wednesday in a bid to drum up support for a renegotiation of Greece's bailout programme, visiting French president François Hollande in Paris, following meetings with the heads of the three main EU institutions in Brussels.

While the French president indicated his support for growth measures in the EU he also stressed the need to “respect . . . European rules, which are imposed on everyone”. He also pointed out that commitments had been made to states in relation to debt.

Renegotiated deal

In an interview with German publication Die Zeit, Mr Varoufakis set out his government’s case for a renegotiated deal.

“Germans have to understand that it doesn’t mean we’re turning away from the reform path if we give an additional €300 a year to a pensioner living on €300 a month. When we talk about reforms, we should talk about cartels, about rich Greeks who hardly pay any taxes.”

The finance minister also dismissed the troika as “a group of technocrats who monitor the implementation of the reform programme”.

“They have ruined our country. The troika doesn’t have a mandate to negotiate another policy with us,” he said, though he added this did not mean Greece would not continue to work with its EU partners.

Discussions between Athens and its international lenders are set to continue in the coming days, with an emergency euro-group meeting of euro- zone finance ministers under consideration. Mr Tsipras will face all 27 of his EU counterparts on Thursday next week in Brussels at an EU summit which is expected to be overshadowed by the continuing standoff over the status of the Greek bailout. Greece’s bailout programme is due to expire on February 28th but the new government has said it will not seek an extension but instead negotiate a new contract with its international lenders.

Greek bond sale

Meanwhile, in its first foray into the markets since the election of the new Government last month, Greece sold € 812.5 million of six-month bills with an average yield of 2.75 per cent on Wednesday. The bid-to-cover ratio fell to 1:3 – the lowest since July 2006.

Separately, Finland became the first euro zone country to sell five-year government debt at a negative yield, meaning investors were in effect paying to lend to the country.