European Central Bank resists latest Greek bailout plan 

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The European Central Bank is resisting a key element of the Greek government’s new rescue plan, potentially leaving Athens with no source of outside funding when its international bailout expires at the end of the month.

Yanis Varoufakis, Greek finance minister, had proposed to European officials that Athens raise €10bn by issuing short-term Treasury bills as “bridge financing” to tide the country over for the next three months while a new bailout is agreed with its eurozone partners.

But the ECB is unwilling to approve the debt sale. It will not raise a €15bn ceiling on t-bill issuance to $25bn as requested by Athens, according two officials involved in the deliberations. “The Greek plan relies fully on the ECB,” said another eurozone official briefed on the talks. “The ECB will play hardball.”

Without T-bill financing, Athens will exit its bailout without access to emergency funding for the first time since the first Greek bailout began in May 2010.

The ECB’s stance raises the stakes in the stand-off between the anti-austerity government in Athens and its international creditors, which if unresolved, could end with Greece running out of cash within weeks.

It is also likely to puncture a sense of optimism among investors over Greece’s alternative rescue plan and a softening of its insistence on debt cancellation, which lifted the Athens stock market 11.3 per cent on Tuesday and pared 10-year borrowing costs by nearly a full percentage point.

The Greek government has said it could survive without additional cash until June, when a €3.5bn bond comes due. But many EU officials fear allowing the programme to lapse could restart market panic and spur a bank run.

Jean-Claude Juncker, the European Commission president, is expected to press Alexis Tsipras, the new Greek prime minister, to ask for a “technical” extension of the current bailout when the two men meet in Brussels on Wednesday.

Eurozone finance ministers are expected to hold emergency talks in Brussels on February 11 to discuss Mr Varoufakis’s plans. The Greek finance minister is due to meet Mario Draghi, ECB president, in Frankfurt on Wednesday.

Despite pressure from several EU leaders, officials who have met Mr Varoufakis say he has insisted the new government cannot ask for an extension for political reasons, since it would send a signal they are willing to go along with the current bailout — a message Mr Varoufakis reiterated at meeting on Monday in London with leading bankers.

“They realise their leverage is low but they feel they are on a mission, and he gives the impression that they are prepared to risk a lot,” said one banker at the London meeting. “Not renewing the programme is just an illustration. He was very clear that they will not ask for an extension.”

Another potential source of short-term cash being sought by Mr Varoufakis is €1.9bn in profits the ECB and eurozone central banks earned by holding Greek bonds to maturity. Under a deal agreed in 2012, that cash was to be returned to Athens, but has not been.

But officials said eurozone ministers are unlikely to allow those funds to be released without a broader agreement, complete with tough conditions.

“That will be a no go — one of many — for the member states; not without conditions,” said one official involved in the talks.

According to officials who have seen Mr Varoufakis’ proposals, it backs off original Greek demands for a large-scale haircut in its sovereign debt, but insists that the budget surplus targets currently in the bailout programme be lowered from 4 per cent to 1 or 2 per cent.

Source: FT – European Central Bank resists latest Greek bailout plan

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