Despite stressing time and again that the ECB cannot dictate policy within individual nation states in Europe, Reuters reports Draghi's henchmen are playing 'bad cop' to Germany's 'good cop' for now as they threaten the withdrawal of Greek financial system funding if reforms are not carried out post election. Greek stocks are falling once again (led by the banks) and default risk has soared, with 5Y CDS +250bps at 1555bps.
Greek banks' access to European Central Bank funding beyond February will depend on Athens successfully completing a final bailout review and reaching a deal on a follow-up plan with its EU/IMF lenders, the ECB said on Thursday.
The statement was the clearest warning yet that Athens cannot expect to rely on ECB funding if it reneges on its obligations under the 240 billion euro bailout program, the prospect of which has grown as Greece prepares for snap polls.
Opinion polls show leftist party Syriza poised to win the Jan. 25 election. The party has promised to cancel the austerity terms of the bailout and demand a renegotiation of debt.
Hammered by the country's prolonged economic crisis, Greek banks have reduced their exposure to ECB funding in recent months but still depend on the central bank for liquidity.
The ECB has helped out Greek banks by exempting them from requirements on the collateral it accepts for access to funding.
"The continuation of the waiver is based on the technical extension of the European Financial Stability Facility program until the end of February 2015 and the existence of an International Monetary Fund program," an ECB spokesperson said in a statement.
"It is also based on the assumption of a successful conclusion of the current review and an agreement on a follow-up arrangement between the Greek authorities and the European Commission, in liaison with the ECB, and the IMF."
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