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

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.

Comments

[bid the soldier...]

Yes, but wasn't that before the Battle of Donbas?

[BeerMe]

So they back out of the EU...then what?  They bankrupt themselves more and start running low on toilet paper?  They certainly won't want their programs taken away.

[Chuck Knoblauch]

https://www.youtube.com/watch?v=_seKyGYlTHY

[Argyrocatharsis]

Big picture ZHers....step back .....road being prepped for the real Boss of this evil cabal.....chaos is required for this to happen....people uprising, looking for a savior .....Spaniards are joining the Greeks....soon the Italians...Portuguese...French...etc....that false angel of light/false savior will appear soon fixing everything....time is near....GOD used the Greeks to usher in this age of democracy/enlightenment 2500 yrs. ago ....he'll use them to spark it's demise and allow this final NWO/one world govnt. to be installed.....SOON

.....enter the anti-Christ.

[GoldenDonuts]

Barry tried that.

[Argyrocatharsis]

Barry may well have a much bigger role to play after his presidency via the u.n....at this point nothing will surprise me....

[Haiku4U]

GOD is behind the NWO?

Sheeeesh.

[hooligan2009]

..has a flashback to bible classes where Jesus overturned the tables of the money lenders in front of a temple...could it be parliaments/congress houses have replaced temples and central or other bankers have replaced money lenders? if so, pro-Christ applies as a simile. (simile, not smile ;)

of course, religion can be as much about back fitting data to suit a made up story told years, decades or centuries later as could the use of momentum indicators be as much about setting a minimum behavioural standard for a community to survive.

e.g. here http://en.wikipedia.org/wiki/First_Council_of_Nicaea

or here: http://www.apologeticspress.org/APContent.aspx?category=7&article=4520

[GoldenDonuts]

What stops Greece from really turning the apple cart over and printing the Euros up that they need?  German invasion? :o)

[MollyHacker]

D-Day is February 28 India removing the duty tax on gold which will definitely effect the underpinning loan to collateral positions.

http://profit.ndtv.com/news/commodities/article-indian-gold-discounts-wi...

[theprofromdover]

I guess the banks in Athens won't be opening Monday.

[theprofromdover]

Bankers are not good businessmen, and not good strategists.

They have always had things their own way, and have no experience in dealing with someone who has nothing to lose and issn't afraid of them.

Plus, hey, its someone else's money (if it even exists at all)

[Bazza McKenzie]

The ECB and, by extension, the EU is between a rock and a hard place.  In order to play the game of extend and pretend over the last few years to keep the euro going, the ECB and other EU entities had to take huge amounts of worthless Greek debt onto their balance sheets.  That got private banks off the hook and required the Greek government to pretend it could and would repay it, while meanwhile selling off at bargain prices any tangible Greek assets and enforcing penury on the population.

As soon as Greece got a government, as now appears to be the case, that said "we are no longer going to play extend and pretend, we are broke and we can never afford to repay those debts, and we are not going to sell off more assets trying to do so", the whole charade falls apart.  At that point it is clear to everyone that the ECB is bankrupt (as is actually the case) and other EU institutions face huge losses.

TPTB can't believe the new Greek government is refusing to play that game.  Their only hope is to bully, bribe, bluff the Greek government back into extend and pretend mode, which seems pretty unlikely at this stage.

The ECB is threating to cut off liquidity to Greece.  Interesting question as to how Greece responds at that time.  It has its own CB, which is able to print euro notes.  Greece may claim as long as it is part of the euro and the ECB is discriminating against Greece, it is perfectly entitled to provide euro liquidity to itself.  Since euro notes are marked with the country of origin, presumably the ECB would decided to not recognise any such euros, but that creates a problem with all such euro notes now circulating outside Greece, which would be largely worthless.  That in turn would create a situation where not all euros were equal.  People in the rest of the eurozone would not want to hold Spanish, or Portugese, or Italian euros compared to German or Dutch ones, in case they also went the way of the Greek euro.

It also solves one logistical problem for Greece.  They don't have to rush to set up the printing presses for the new drachma.  They just keep issuing Greek euros, some of which would no doubt find their way into the hands of the unwary elsewhere in Europe.

[Haiku4U]

Great point/idea. I had not thought of this as an alternative. I didn't know that each country printed unique Euro's.

Everyone complained of Greece being a 'deadbeat' country, and now that they are starting on a 12 -step program....the Troika are trying to force them to have a drink at their bar.

[PontifexMaximus]

http://www.numispedia.de/Euro-Banknoten,_L%E4nderkennung

[litemine]

What I read into this mess is that the new Government in Greece has become responcible. May mean short term pain for the long term gain and I can not wait until the truths about missapropriations of funds gets released.  Those that have removed the money from Greece, most before the election my be the Criminals. (insiders to the facts ahead/behind). I wish that now Greeks have opened eyes the rest of Europe does as well. This experiment Failed except for the non productive bankers and their Minions who like the CIA sell their soles and there family's futures. Payback will be a bitch. 

[bid the soldier...]

I kid you not

Jeroen Dijsselbloem  means Tulip Mania Blossom in Dutch.

[Clowns on Acid]

The Greek banks might be bankrupt in Euro terms but not in Drachmas.... Print Drachmas back it by gold and silver holdings... start from the bottom and work your way up.  The rest of the southern European countries are not that far behind you.

[steve2241]

The Olive Revolution, a.k.a. the Christian Spring!

[indaknow]

Thought the Greek FinMin just said they dont want anymore, lol. what kind of ECB threat is that?

Kinda like visa threatening to not raise my limit after I cut my card in half

[ButterForce]

Obama makes power move.

The US rescues Greece.

[bid the soldier...]

Why am I the only one here on enough medication to say it?

Alan Greenspan was tasked in the late 80's/early 90's, prolly by Bush pere,who knew that in a matter of decades or scores of years whites would be in a minority in the US and, that if global economic growth continued at its rapid pace, the huge reserves of crude oil will have fallen to an unacceptable quantity, both economically and militarily.

Greenspan himself expanded the number of subprime mortgages until there was adequate bulk of them to aggregate into tranchable CDOs and MBSs and voiced no objection when his shills in Congress repealed Glass-Steagall, so they might be sold wholesale.

These American Housing Mortgage Bonds (also called "The Bubble") sold like wildfire around the world until the bubble began to collapse at the end of 2007, when America went into recession.

Most of the world went broke and the US began printing money to backstop its stock market and help, for very  profitable terms, its allies recover from the stroke dealt to them in late 2008 early 2009.

It was at this time that the US began its policy of the installation of Patriot anti-missiles all along the Russian border in poor Eastern European NATO nations.  Nations to whom the US made offers; offers that could not be refused.

When it came time to put Patriots in Ukraine, the US had to foment a coup to get the pro-Russian president out of office.  Russia responded by annexing Crimea after its voters voted to leave Ukraine.

Very recently the voters in Greece just voted in anti-austerity politicians and that brings us back to dough.

Now you see how demented someone can get from living in the USA too many years.

[Last of the Mid...]

Once these buffer countries get out of the EU, Germany will have Puting literally knocking at their back door. Pun intended.

[dumbStruck]

It's been Doomsday in Greece off and on for years now, same as the rest of the world, Doomsday's always just another crisis away but never arrives. It's just put off until tomorrow. The horribly deformed agonized whimpering economy's of the world need to be put to sleep once and for all. The bankers should be taken out and hung for their inhuman cruelty.

[holdbuysell]

That BBC interview in this light is even more disturbing, as she asked questions about trading cards that would be needed during negotiations. Of course Greece's finance minister isn't going to show his hand beforehand. And then she gets all indignant about it. If anything, the BBC comes across as a snoop for the status quo banksters. Yes, it looked that bad, BBC.

Hey BBC, why don't you interview Draghi in the same rude manner, asking similar questions on their trading cards? What? Oh, right, you'd be fired and ostracized from ever working again.

Total disgrace.

[eddiebe]

Here is what to do Mr. Tsirpas: Default on all greek debt and declare a debt jubilee. Then start using Rubles as the greek currency.

This would probably start WWIII, or should I say it would escalate it.

[dreadnaught]

ICELAND got away with it....dont let the ECB Money Mafia force you to take more "protection money" to pay back later...DEFAULT!

[tok1]

And he's caved already . What they will do is make most of the
IMF/ECB/EU bonds zero rate ( so either they are reducing the debt or it stays the same if budget is balanced).

Stage 2 if it's all agreed, they will let Greece be part of QE, so the bank of Greece will get to buy say 50 bill of the non TRIOKA debt which like the FED/BOJ /BOE will have the interest returned to treasury, so Greeces debt cost will be greatly reduced.

Then he will be under pressure to implement structural reforms that actually grow. the economy.

http://www.bloomberg.com/news/articles/2015-01-31/tsipras-says-greece-to...

[hooligan2009]

Action plan for Greeks with more than the German government guaranteed bank deposits (hah!) plus citizens of other countries that no longer wish to use a banking system controlled by central banks and don't/can't bring themselves to trust bitcoin and, of course, assuming the Greeks don't shut down the internet and your local Greek high street bank on Monday.

Step 1; immediately, using the internet, locate a nearby foreign city (non-Greek country) that has
a)     A triple A rated bank that offers internet account opening facilities (for example, HSBC, Deutsche Bank or ING) and which has ATM facilities compatible with your Greek high street bank  
b)     Bullion dealers in coins and ingots for gold and silver which take cash settlement for on the spot transactions 
c)     Good transport links to Greece.  This could be Italy, Austria, Hungary or, at a pinch, Switzerland (or perhaps further afield to Germany, Holland or Belgium if you have enough money to fly as these would be more likely to do what comes next); book a return (air/rail/bus ticket for Monday/Tuesday/Wednesday to the city of your choice) on the internet funded for your Greek high street bank account.

(Possible Step 2; consider for a few moments, withdrawing every euro you can by maxing out all your credit cards and overdraft facilities (don't spend too much time on this one, but...just saying)

Step 3; immediately transfer every euro you have (after paying for your travel costs) via the internet payment system into the foreign bank in the city identified in step 1 above.

Step 4; on Monday, buy a secure fireproof and waterproof metal box or strong large brown envelopes (you are going to take them when you travel to the city you have identified).

Step 5; on Monday/Tuesday/Wednesday travel to the foreign city, go to the foreign bank you identified in Step 1 and withdraw European euro bank notes with the foreign countries central bank on them (do not accept Greek central bank euros), to the value of 5,000 a year for each of your family unit for two years (four people = 40,000 euros) plus the value of your house (say 200,000 euros) for a total of, for example, 240,000 euros. (If you have less, take it all)
Step 6, take the 240,000 from step 5 and go to the bullion dealer identified and buy the lowest denomination for 2/3 gold and 1/3 silver for 200,000 euros and keep 40,000 in euro cash.

If you don’t have the internet, you will have to use a bit more shoe leather. Most of the steps still apply, but you won’t be able to locate banks, bullion traders or travel without asking locally. If you can't open a foreign bank account, you will need large brown envelopes or secure fireproof and waterproof metal boxes (not a horse drawn cart, but hey) to withdraw all balances in your Greek high street bank. I doubt you will need to worry about paying anything for mortgage/power/city taxes as these won't be required, post a collapse in the Greek economy), but you will need to make sure you keep the money envelopes and metal box in a secure place. You can still follow steps 5 to 7, but you will need to travel to the city of your choice, with your Greek envelopes/metal box full of euros and open a bank account at the bank in the foreign city so that you can first deposit all your euro bank notes (which have been drawn on the Greek central bank) into a new foreign bank account. You will then have a deposit in a foreign bank. You should need to wait a few hours then go back to the foreign bank and withdraw foreign central bank issued euro bank notes (do not accept Greek central bank euros).  

Step 7, return home and wait developments.

???? ????

[steve2241]

Bear Stearns, dead ahead!

[steve2241]

Dow Futures down 335 points.

[dreadnaught]

lets see....it could become BRICGS

[Firewood]

BRICGS it is, as Greece PIVOTS to the EAST, to energy, sanity and the removal of NATO (North Amerikan Terror Organ) from Greek soil and air space.  The €urodollah IOU post petroscrip fiat Saudi Mercan toilet paper is being flushed from the Ponzi crapper casino in the Wall St casino of the Potemkin Village of rigged market "capitalism" via an ancient Greek sewer line and the attendant tsunami of Golman Suck$ toxic filth will crash the already wobbling Deutsche Bank dogpile of €60 trillion of derivative debt. Greece not being able to pay its pound of flesh is the least of the bankster zombies' worries.