ECB Threatens Athens With Bank Funding Cutoff If No Deal In One Month: February 28 Is Now D-Day For Greece

Tyler Durden's picture

As Deutsche Bank's George Saravelos politely puts it, "Developments since the Greek election on Sunday have moved very fast." And indeed, so far the new Tsipras cabinet, and here we focus on the words and deeds of the new finance minister Yanis Varoufakis, has shown that the market's greatest hope - that the status quo in Greece will continue - has been crushed into a pulp (and so have Greek stock and bond prices) especially following yesterday's most recent comments by the finmin in which he said that Greece "does not want the $7 billion" from the Troika agreement and that it wants to "rethink the whole program", culminating with an epic exchange with Eurogroup chief Jeroen Dijsselbloem in which Greece made it clear that the "constructive talks" are over.

And suddenly the Eurozone is stunned, because what had until now been its greatest carrot when it comes to dealing with Greece, has become completely useless when the impoverished, insolvent nation itself says it no longer needs a bailout, seemingly blissfully unaware of the consequences.

So earlier today the ECB's Erikki Liikanen, tired of pleasantries and dealing with what to Europe is a completely incomprehensible and illogical stance, one which is essentially a massive defection by Greece in the European "prisoner's dilemma", and which while leading to a Greek financial collapse and Grexit - both prerequisites to a subsequent Greek economic recovery unburdened by the shackles of the Euro - would also unleash a European depression, came out and directly threatened Greece that it now has 1 month until the end of February to reach a deal with the Troika, or else the ECB would cut off lending to Greek banks, in the process destroying the otherwise insolvent Greek banking sector.

And since only the ECB backstop has prevented a banking sector panic, the ECB is essentially betting the house, and the sanctity of the Eurozone (because after a Grexit all bets are off which peripheral leaves next) that the threat, and soon reality, of a bank run (at last check Greece had about €145 billion in deposits still left in its bank after JPM's latest estimate of €15 billion in outflows in January) will finally force Varoufakis and Tsipras to sit at the negotiating table with the understanding that not they but the Troika has all the leverage.

Reuters explains:

A deal on extending Greece's bailout deal must be found by the end of February or the European Central Bank will not be able to continue lending to its banks, ECB council member Erkki Liikanen said on Saturday. Europe's bailout programme for Greece, part of a 240-billion-euro ($270 billion) rescue package along with the International Monetary Fund, expires on Feb. 28 and a failure to renew it could leave Athens unable to meet its financing needs and cut its banks off from ECB liquidity support.

 

Greece's new leftist government, which aims to ease the strict terms of the bailout that have imposed harsh austerity, opened talks with European partners on Friday by flatly refusing to extend the current programme or to cooperate with the international inspectors overseeing it.

 

"We (ECB) have our own legislation and we will act according to that... Now, Greece's programme extension will expire in the end of February so some kind of solution must be found, otherwise we can't continue lending," Liikanen, also the governor of Finland's central bank, told public broadcaster YLE.

 

"I don't believe that one can hide from the realities in the economy," he said in an interview.

And then another hint from the ECB, this time from Vitor Constancio. As Bloomberg notes, "at the moment, Greece has a special dispensation from the ECB because it’s complying with a bailout program. That means its debt can be used in central bank refinancing operations even though it is rated junk. “There will be no surprises if we find out that a country is below that rating and there’s no longer a program that that waiver disappears,” ECB Vice President Vitor Constancio said at an event in Cambridge, England, on Saturday."

The question arose why when Greece already has undergone a Private Sector Involvement restructuring, i.e. a bankruptcy that however only impacted private entities and not official ones, such as the ECB, can't Greece have another debt haircut to which Liikanen responded that: "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."

Odd: because that is precisely what the ECB is doing with QE, when it monetizes any of a number of Eurozone deficits. To this Liikanen also had a quick response:

  • LIIKANEN SAYS ECB ISN'T FINANCING EURO GOVERNMENTS' DEFICITS

Well, it is, but we'll let that slide for the time being. The bigger issue is that since the ECB directly holds tens of billions of Greek debt, any impairment on this debt would crush what the ECB has been saying from day one: that it can not suffer losses on the debt it has monetized or otherwise transferred over to its balance sheet. Such an impairment would immediately destroy Draghi's credibility, and promptly lead to furious screams from around the Eurozone as taxpayers suddenly realize all too well they are on the hook for funding the Eurozone's most insolvent members, first Greece and then everyone else who has already entered a toxic deflationary spiral. And since the ECB would finally be exposed for being Europe's "bad bank", the scramble to dump as much toxic exposure on Draghi would begin in earnest in the process launching the beginning of the end of the Eurozone.

One can almost see why Greece does think it has all the leverage.

That said, Greece now also has a countdown in which it can and will have to make a decision what to do with its leverage, and precisely 28 days until its very own D-Day which is now February 28, 2015 as per today's ECB threat.

So with February now shaping up to be an even more volatile month for Europe, and thus the world, than January and December (both of which closed red) here is the full schedule of events and what the "known unknowns are" in the next 4 weeks, courtesy of Deutsche Bank.

From George Saravelos' Update on Greece

It is worth bearing in mind that the timing, scope and commitment to the policy changes announced by Greek ministers is highly uncertain, not least because the legislative agenda is likely to be directed by the leadership team of the new government rather than individual line ministries. This still leaves plenty of uncertainty on the new government’s intentions. On the more negative side, the breadth of statements was so wide and the speed with which they were made so quick, that we now consider an extension of the February 28th program expiry date as a key date within the negotiation process: Europe and the Troika are very likely to request an explicit commitment from the Greek government to close the current mission review and not reverse previous policy. The precise form such a commitment would take is unclear at this stage, but our underlying assumption is that uncertainty around the new government’s policy intentions is so high, that Europeans will request assurances before proceeding with more in-depth negotiations over the program in Q2.

In turn, the above developments will likely have important implications for Greek bank financing at the ECB. Termination of the program on February 28th renders GGB-based collateral ineligible at Eurosystem refinancing operations, but still allows Greek banks to shift funding to Emerency Liquidity Assistance. However, ELA usage is under bi-weekly ECB review and is very likely to be on a rising trend over the next few weeks: to accommodate potential deposit flight; to absorb foreigners’ refusal to roll-over t-bills that are maturing; and to absorb fresh government t-bill issuance to finance upcoming debt repayments to the IMF and other obligations. These large needs make it likely that the availability of ELA usage is itself linked to program extension above.

All of the above then leaves three things that need to be clarified over the next few weeks.

First, under what conditions would the Troika be willing to extend the program and what form would this extension take? Our initial expectation was that a technical extension would have been offered to July followed by a successor ECCL program. Recent market developments and poor budget execution leave Greece’s ECCL eligibility an open question however, and it is possible that the Troika now only accepts program extension by a full year to coincide with the conclusion of the IMF program in March 2016. Such a large extension would be more difficult for the Greek government to manage domestically.

Second, does the ECB link Greek bank ELA provision to program extension as well? Given rising usage over the next few months, we would consider this an increasing possibility.

Third, what will the Greek government’s response to these conditions be? Public statements over the last 48-hours make it particularly difficult to envisage the government’s reaction function. On the one hand an offer of a one year extension and a written commitment to close the review would be particularly difficult for the government to manage domestically. On the other hand, the suspension of ECB financing of Greek banks would be exceptionally damaging to the economy.

Here is an indicative timeline of key events that will likely provide answers to these questions:

  • Friday January 30th – Eurogroup President Dijsselbloem meets with the Greek finance minister Varoufakis and Deputy PM Dragasakis in Athens. A press conference will follow, with the meeting likely setting the tone of negotiations to follow.
  • Sunday February 1st - Greek finance minister Varoufakis meets UK finance minister Osborne in London
  • Monday February 2nd – Greek finance minister Varoufakis meets French finance minister Sapin in Paris Tuesday
  • February 2nd - Greek finance minister Varoufakis meets Italian finance minister Padoan in Rome
  • Wednesday February 4th-5th – Bi-weekly ECB review of ELA
  • Wednesday February 4th – Likely t-bill auction to cover 1bn redemption on 6th
  • Thursday February 5th - Greek parliament opens, elects new speaker of the House
  • Saturday February 7-9th Government presents legislative agenda to parliament, vote of confidence midnight Monday 9th
  • Wednesday February 11th – Likely tbill auction to cover 1.4bn maturity on 13th
  • Thursday February 12th – European Council of EU Leaders, Tsipras likely to meet Merkel on sidelines
  • Friday February 13th – Voting for new Greek President begins, EC Commissioner Avramopoulos most likely candidate as per various media reports, originating from New Democracy. Likely completed by second round on the following day requiring 151 MP majority
  • Monday February 16th – Eurogroup where Greece likely to be top of agenda, conditions for extension of program to be made explicit by now
  • Wednesday February 18th-19th- - Bi-weekly ELA review
  • Saturday February 28th – Current EFSF program expires

In sum, developments and pressure on Greece have accelerated over the last few days, with a very large degree of uncertainty around both the Greek government’s and Troika’s position on how negotiations will proceed. We expect this to be ultimately resolved by a Troika request from the Greek side to commit to program completion and the broad contours of previously committed policy, particularly with regard to structural reform. In turn, program extension may itself be linked to ongoing ECB/ELA financing of Greek banks. The precise form this request takes and the Greek government’s reaction will ultimately determine the path Greece takes in coming weeks and months.

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JustObserving's picture
Germany has already adopted a hard line stance - low chance of any agreement now:

 

Angela Merkel rejects debt relief for Greece


German Chancellor's words add to tensions between the radical new Greek government and its international creditors

German Chancellor Angela Merkel ruled out any cancellation of Greece's debt and said the country has already received substantial cuts from banks and creditors.

"There has already been voluntary debt forgiveness by private creditors, banks have already slashed billions from Greece's debt," Merkel said in an interview with the Hamburger Abendblatt newspaper.

"I do not envisage fresh debt cancellation," she said.

http://www.telegraph.co.uk/news/worldnews/europe/germany/angela-merkel/1...

hedgeless_horseman's picture

 

 

...The ECB cannot fund a state directly, which is what it would
mean in this case."

Odd: because that is precisely what the ECB is doing with QE, when it monetizes any of a number of Eurozone deficits. To this Liikanen also had a quick response:

  • LIIKANEN SAYS ECB ISN'T FINANCING EURO GOVERNMENTS' DEFICITS

 

Well, it is...

Exactly. 

Moral hazard writ large.

Latina Lover's picture

It's on.... Austerity versus debt cancellation and growth.

BaBaBouy's picture

Vladimir Is Happy Ready To Move In And Save Greece From EU Nightmare...

jaap's picture

Draghi will blink first...

BigJim's picture

 or else the ECB would cut off lending to Greek banks, in the process destroying the otherwise insolvent Greek banking sector.

Oh! You mean the Greek banks aren't safe like they keep saying?

/s

Romney Wordsworth's picture

I killed a man with a Trident!

Save_America1st's picture

oh I'm really suuuuuuuuuure these Greek Commies give a fuck about any ECB Draghi threats at this point.  They're operating on a mandate that they will not turn back on.

 

And when, not if, Russia and China back them and bring them into their fold and protect them i.e. the Shanghai Cooperation Organization (that no one is talking about yet), that will signal the end to Greece in the EU and will trigger the next defaults with Italy, Spain, Portugal, etc.

I think the EU fuck-tards know how screwed they are now and anything they try to do or say is just a worthless bluff.

Keep stackin' that phyzz, folks.  And I also recommend stacking a healthy supply of popcorn, cuz this show is gonna be epic!

Recommendation?:  BANK RUNS, BITCHEZ!!!

SWRichmond's picture

Imagine how many people you could enslave if you could print money, then lend it at interest and use the courts to enforce getting paid back.

Save_America1st's picture

BANK RUNS...I don't just mean for Greece alone. 

 

I mean EVERYBODY. 

GET...YOUR...SHIT...OUTTA...THE...BANKING...SYSTEM...NOW...BITCHEZ!!! 

strannick's picture

"ECB Lending to Greek banks" means bank welfare and austerity for everyone else. It's the offer of a soup kitchen from the Big House in Brussels. Greece needs to get the fuck out from under the thumb of Euro weenies in Brussels and be the torch of democracy for the world.

SPARTA!

Son of Loki's picture
Faber: Dump Biotech, Short Central Banks, Buy Gold

 

http://finance.yahoo.com/video/faber-dump-biotech-short-central-05520366...

 

Good interview with Faber and the editor of Barron's.

BaBaBouy's picture

""Imagine how many people you could enslave if you could print money, then lend it at interest and use the courts to enforce getting paid back.""

Come On... We Are All Decent Humans, What Kind Of Humanoides Would Ever Possibly Stoop That Low ?..

Tall Tom's picture

Tsripas' life expectancy can now be measured in days.

 

Not that I would ever take a contract, any contract, like that but I just wonder what Draghi, Merkel and Yellen are paying?

 

Maybe even the Mossad will pull it off.

 

Of course it will be an "ISIS terrorist attack" hit. The Muslims did it....those damned Muzzies.

BigJim's picture

 Of course it will be an "ISIS terrorist attack" hit. The Muslims did it....those damned Muzzies.

Or he'll get a dose of Polonium, and the poisoner will leave his (Russian) passport in the getaway car, along with a copy of 'Polonium Poisoning for Dummies' signed by Vlad himself.

Tall Tom's picture

One bogeyman is as good as another, I guess.

 

Whom are the "Enemy of the DayTM", today, anyway?

 

The Iraqis, the Afghanis, the Libyans, the Syrians, the Ukrainains, the Russians, the Chinese, or the Pakastnis???

 

Hell I have lost count and cannot keep up with the nonsense.

AbbeBrel's picture

Thanks SoL for posting this. I like the part where Faber talks about "shorting the central banks". :-) (original post is WAY up above, search for Faber)

http://finance.yahoo.com/video/faber-dump-biotech-short-central-05520366...

[SoL:] Good interview with Faber and the editor of Barron's.

king leon's picture

Big cracks appearing in the EU dam wall.

Professor Fate's picture

The new Greek D-Ruble being printed as we speak.  Vlad (with a bit of help from China) is in a position to give the EU the REAL meaning of sanctions.

Fate the Magnificent
"Push the Button, Max" 

giggler321's picture

Varoufakis tweets - 1st Feb - UK visit likey includes a trip to De La Rue

mr.n3utr0n's picture

That's it. If the euro isn't working for your country, go back to printing your own currency, and eliminate the toxic one.

Fractal Parasite's picture

Prosperity plan for Greece:

1. Default on government debts.

2. Issue drachmas under public control.

3. Hold an annual budget referendum in which the voters decide by how much % to increase the money supply in order to fund the public sector.

4. Offer loans to the private sector at a low-ish interest rate. Drachmas are created when the loan is issued and removed from circulation when the load is repaid. The interest goes to fund the public sector, thereby reducing the tax burden on everyone else.

5. All exports of olives, feta cheese, etc., must be paid for in Drachma, thus creating demand for the currency.

6. Invest in domestic production and reduce imports in order to create a trade surplus and strong(-ish) Drachma.

7. Sign a defense pact with Russia.

Greater Fool's picture

Yes, the Greeks have always excelled at creating ruins. This plan will be their Magnum Opus in that regard.

TMLutas's picture

For even more fun, issue euros, not drachmas. Greece has the right to print euros. They have a printing plant in Athens to do it. When things go south in the negotiations, why change your paper to a different currency? Just issue more of the currency you're already issuing and pay your debts in the currency issued. What is Germany going to do, bomb the printing plant and activate the NATO mutual defense treaty? 

robertocarlos's picture

Always check your Euro notes for the Greek symbol. Burn those notes and pass the duchy on the left hand side.

TMLutas's picture

If you hold a greek, euro denominated bond and they pay with greek symbol notes, you're perfectly free to burn them afterwards. The debt is still paid. 

Which is worse - bankers or terrorists's picture

I don't understand why Tsipras just doesn't print euros to fund his debt. Why not? If Europe can ignore Greece's vote on sanctions for Russia, why can't Greece just ignore Europe on printing more euros?

TeethVillage88s's picture

I like the brevity of this list. 2 critiques: .gov can fake the stats for the national referendums, so transparency must be made large to preserve the integrity,... and we need a list of places where money is created and the ratio of assets to credit must be defined (like 1:10 at all banks credit unions and investment banks/commercial banks and those that create derivatives.

- No CB, so no creating money out of thin air
- Federal or national creation for budget is the peoples will
- Insurance, credit unions, state banks, public banks, private banks, investment banks, commercial banks all limited to standard financial instruments and standard accounting (whatever that is) and a ratio of 1:10, plus healthy bank reserves to fall under Basel III
- Greek Treasury needs strategy for precious metals and other reserves to back the currency & government, Pipelines and deals with Russia, China, USA, EU, Germany can be designated for Precious Metal Transactions

But I don't read much, and am not a banker or finance guy.

HardAssets's picture

SWRichmond - "Imagine how many people you could enslave if you could print money, then lend it at interest and use the courts to enforce getting paid back."

Yes, this is exactly what is going on around the world. Are people amazed when GS types were involved in getting Greece into the EU, or GS and other bankster types were in high levels of their government ?

Perkins wrote all about it. It's a massive scam. And the attempts to put the world on a 'carbon credit' based financial system that they control, to replace the petro $, is just another scam. They can get away with it because many haven't learned the critical thinking skills needed to see through the fraud.

The ruling system of the West is completely run by criminal fraud & lies from top to bottom.

franzpick's picture

Americans revolted to get out from under the oppression of King George's Bank of England, then over the next 200 years allowed their corrupt 'representatives' to grant the right to issue money as loans at interest, to 3 more private banks. It's America's tragic, shameful, and ongoing untold story, hiding in plain sight: 

http://whatreallyhappened.com/WRHARTICLES/allwarsarebankerswars.pdf

 

LibertarianMenace's picture
  • Ya know, that almost sounds Khazari; or something. A confidence game lies behind the idea of money. The whole exercise has more to do with Houdini than the formulas of Uncle Milton. Historically, it's always been that way, sadly, people prefer enslavement.
NoDebt's picture

Note to the Greek people:  Get your Euros the hell outta the bank.  You don't want to be last in line when this shit goes down.

Remember Cyprus!TM

hampsterwheel's picture

What Euros? The ECB and IMF vampires have sucked them all out of the system -

nope-1004's picture

Agreed.  This statement, when analyzed, is full of holes:

 

A deal on extending Greece's bailout deal must be found by the end of February or the European Central Bank will not be able to continue lending to its banks, ECB council member Erkki Liikanen said on Saturday. Europe's bailout programme for Greece, part of a 240-billion-euro ($270 billion) rescue package along with the International Monetary Fund, expires on Feb. 28 and a failure to renew it could leave Athens unable to meet its financing needs and cut its banks off from ECB liquidity support.

 

First off, Greece said NO to further bailouts.  The first sentence above claims otherwise and is propaganda for the masses.

Second, the "rescue package" is 6 years on already.  How many more years of failed life support does the current setup need?

Third, the last sentence is a total oxymoron.  There is no "ECB liquidity".  There are bankers trying to enslave the masses through ongoing bank "crisis".  The system, as is currently setup, is designed so that the bankrupt nations are beholden and dependent on CB "liquidity", that in reality doesn't exist either.

THE STATEMENT BY REUTERS IS TOTAL PROPAGANDA.  Greece already said FU to the EU.  Mario is panicking because the bankers will lose their grip on controlling the Greece citizens if they exit - as they should.

 

 

 

franzpick's picture

Alexis and Varoufakis: Keep your enemies close, and your bodyguards closer.

BurningFuld's picture

Riddle me this Euro Bankers. Why would you lend the Greeks so much money when you live in a "true democracy" (That you love to shove down the rest of the uncivilized worlds throat) when you know at any moment the people of Greece could vote NOT TO PAY YOU BACK.

Show us all your respect for democracy now.

Chupacabra-322's picture

"Fuck the EU."

-Victoria "Cookies" Nuland.

Tall Tom's picture

No worries. The financial fallout will be contained to Europe...

 

And have I a bridge to sell to you if you will believe that...

 

It is made out of imaginarium with that ultra durable unobtainium. In fact once on this bridge you will never have to worry about energy costs as your car will travel forever.

 

With this material you can actually pave entire Nations as the limits are only that of your imagination.

 

And I have it for the bestest price...

 

And while we are at it did you know that I can ride a bike with no handlebars...

 

THIS ENTIRE FUCKED UP SYSTEM IS RUN BY CHILDREN...ADULT CHILDREN...LOCKED IN FANTASYLAND.

 

Damn...We are so fucked.

TeethVillage88s's picture

They love status quo, all decisions revolve around this. QE is great example.

Hey I notice gold jewelry is only gold plated here, is it any kind of real investment? plus 14 karat plated seems cheap crap. I doubt any of it is stamped for karats anyway.

and I see watches, but they are not stores of wealth are they. I never liked watches anyway.

what is the story about how jewelry gets called jewelry anyway.

Ian56's picture

If I were Greece http://ian56.blogspot.com/2012/10/if-i-were-greece.html

Anyone who thinks that Italian taxpayers are going to stump up 48 billion euros, or Spain will pay 32 bn  if Greece defaults needs to head straignt for the insane asylum without passing GO. http://globaleconomicanalysis.blogspot.co.uk/2015/01/revised-greek-defau...

Element's picture

Draghi doesn't make policy, he implements it, or he gets sacked.

Dubaibanker's picture

Greece is already anti austerity and the ruling party is close to Russia.....now here comes the next domino - Spain - joining the anti austerity drive and pro Russian camp.

Podemos Anti-Austerity Party on the Rise, Thousands Protest in Madrid

Read more: http://sputniknews.com/europe/20150131/1017590110.html#ixzz3QPZRUalD

And here is the 'sea of people' in Madrid today: http://www.bbc.com/news/world-europe-31072537

turnoffthewater's picture

I don't get it. Is this when everyone starts voting for their own enslavement but I thought that already happened.

That's right history repeats itself.

BlindMonkey's picture

I am sitting in a bar having a goodly number of lunch beers and can't keep thinking of your "voting for enslavement" meme. I understand that people don't want to make decisions in their life but that is hard for me to deal with. I am going to have another 1, 2 or 3 to fully grok your point.

new game's picture

putin doesn't even have to move a piece on the chess board. imagine winning without playing. zero risk, come to papa, we have a warm bed for to sleep in. oh yea ma makes breakfast in the morning, hot shower-sure. laundry room(do it yourself), ha...

russia, keep reserved and strong, you and china are the only hope to stop the madness.

can't even believe i typed this- hey nsa it's true, you are on the wrong side...

NihilistZero's picture

When Communist China and Oligopoly Russia are your "good guys" you know you're fucked...