ECB turns up heat on Greece

The European Central Bank (ECB) on Friday said that it would no longer accept Greek bonds and other collateral used by Greek banks to tap into ECB funding until after Greece talks with its international creditors.

“The ECB will assess their potential eligibility following the conclusion of the currently ongoing review, by the European Commission in liaison with the ECB and the IMF, of the progress made by Greece under the second adjustment program," said the central bank in a statement.

The bank said that the arrangement was "for the time being" and would take effect from July 25.

The development turns up the heat on Greece, according to analysts, as it prepares for talks with the so-called "troika" - the International Monetary Fund (IMF), the ECB and the European Commission - about whether Athens has gone far enough to slash its budget and carry out reforms.

No big deal?

The collateral that Greece is being denied is significant for Athens. Greek banks rely on ECB credit to function and without the support they would have to lean on expensive emergency credit from their own central bank.

But a spokesman for the Greek finance ministry dismissed the development as "purely a formality."

''We expect the ECB to start accepting Greek bonds as collateral again after the troika report," the spokesman told the Associated Press, speaking anonymously.

Athenshas so far received two bailouts worth 240 billion euros ($294 billion) from other eurozone governments and the IMF after investors refused to continue lending the country money at rates it could afford.

Although Greece is obliged to drastically cut its budget deficit and apply structural reforms to its economy in return, its growth has continued to splutter. Prime Minister Antonis Samaras has responded to the continued sinking of the Greek economy by asking for more time to meet the conditions.

sej/slk (AP, Reuters)