Mixed reports from the ECB members are giving support to the Euro.
After Wednesday’s announcement from the ECB that Greek bonds will not be used as collateral for Greek debt, further comments today give a mixed view and a possible German-France argument arising concerning their Hellenic neighbour.
Wednesday’s meeting between ECB and Greece provided the headline of the central bank rejecting the use of Greek bonds to support the Greek debt forcing Greek lenders to stand on their own without liquidity from Europe. The EURUSD fell accordingly. However on Thursday, Francoise Holland, president of France, gave support to Greece, saying that the country could not live by austerity. The EURUSD surged on the news.
Reported in the telegraph, Francoise Holland said, “Europe's second largest economy would help Greece to deal with its debts.”
Stocks fell across Europe on Wednesday’s announcement and the EURUSD took a tumble, however, both the single currency and European stocks were bolstered by Holland’s support of Greece:
EURUSD fell to lows of 1.13 on Wednesday but started to retrace on Thursday’s trading, rising to 1.145.
Germany30 [DAX] fell to 10799 on Wednesday, climbing back to 10930 on Thursday.
Greece20 plunged to 231 on Wednesday, rising slightly to 236 in Thursday’s market.
Mario Draghi, president of the European Central Bank, and Greek finance minister Yanis Varoufakis met on Wednesday but the new Greek government’s representative failed to impress upon the ECB their mandate to renegotiate the bailout terms. The bailout programme expires on 28 February and Greece has asked for an extension of one month to provide a new plan. In the meantime Greece has also declined any further funding from Europe on top of the €240 billion already received.
The ECB decision to reject Greek bonds and Greek government-guaranteed bank debt within the payment terms for the Greek liability means that Greek banks will have restrictions on accessing cheap liquidity, leaving them with a risk of extreme capital shortage.
ECB council member Erkki Liikanen, told public broadcaster YLE in reference to the possibility of a Greek debt haircut, “A significant debt restructuring has been carried out with private investors. The ECB cannot fund a state directly, which is what it would mean in this case.” (Reported by Reuters).
This is a tough line for the ECB to follow as the waiver for the junk rated country to use government debt as collateral expires on 28 February if Greece leaves the prescribed bailout programme.
Thursday brought a difference stance and though Jens Weidmann told an audience that it was “Greece's decision to stop cooperating with Europe's debt inspectors, so they must learn to live with the consequences of their actions. Eurozone states remain fully responsible for the consequences of their own autonomous fiscal decisions.” (Reported by the Telegraph).
Francois Hollande’s peacemaking approach has aided confidence in the Hellenic/European stand-off and extended volatility on the euro.
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