ECB says it will not accept Greek debt as collateral
German Central Banker Critical of Greece
EU Increased growth forecasts for euro zone
The Greek goodwill tour by prime minister Alexis Tsipras and finance minister Yanis Varoufakis was met with a stonewal after visiting Frankfurt. Although the meeting with German finance minister Wolfgang Schauble went about as you would expect from the two polar opposites on the topic of bailout terms the European Central Bank announced after hours that it would no longer take Greek sovereign debt as collateral. The forex market was further jolted by the news with some suspected intervention by the Swiss National Bank that drove the EUR higher.
The European Union released its economic growth forecasts that also boosted the EUR’s advance versus major pairs. The economists at the European Commission, the EU’s executive arm, said the eurozone should grow 1.3% this year and 1.9% in 2016. In November, they expected growth of 1.1% this year and 1.7% next. The decline of the currency and cheaper oil are the major contributing factors to the improvement of the forecast.
The commission raised its growth estimates for most of Europe’s largest economies, including Germany, France and Spain. It is important to note that the cutoff date for the forecast was Jan 23rd days before the Greek election. The estimate for Greece’s economy is to expand by 2.5%, down from 2.9% with the expectation that the bailout terms would be unchanged, which is highly unlikely at this point.
ECB says it will not accept Greek debt as collateral
The ECB decision leaves the Greek Central Bank in a bind, as it only has emergency liquidity assistance (ELA) as the nation’s bonds are not accepted as collateral in exchange for funds. Given the rumors of around EUR 11 billion withdrawn after the Syria victory this does well for the Greek financial system and could spark a full on run on the banks.
Finance minister Varoufakis is calling it blackmail as the terms make the decision effective February 11. He says under the regular ECB financing the cost would be 0.05 percent versus the 1.55 percent cost of ELA.
The ECB made it clear that it was accepting junk rated debt in the past as part of an agreement that included austerity program compliance. Since the central bank assumes the probability of that happening its low it has decided to end the program. The last time Greek lenders needed ELA was in 2012 during bailout negotiations.
EU Cuts UK Growth Forecast and BoE keeps rates
The European Union lowered headline inflation forecasts in the U.K. to 1 percent in 2015 down from the 1.6 percent expected back in July. U.K. gross domestic product (GDP) was cut to lower growth in 2015 to 2.6 percent down from 2.7% previously forecasted.
GBP/USD is retracing its steps towards yesterday’s session high of 1.5250 as it currency trades around 1.5243. The decision by the Bank of England had little effect as with 90 days to general election will keep the central bank on hold until the political uncertainty is resolved. The European Union’s lower forecasts for UK growth were taken with a grain of salt as the factors that were taken into consideration: Greek bailout certainty and lower price of oil are now beginning to shift.
Oil hit by higher inventories but boosted by China Stimulus
Crude touched the $55 a barrel price line after China announced further liquidity injections to spur the economy. Oil has reversed some gains after stronger inventories were announced as oil producing nations continue with record outputs. Energy companies have begun to cut down on new developments and scaling back production from unprofitable projects, but those moves will take some time to hit the market. Global demand signals like the one from China have driven the commodity higher along with comments from OPEC Secretary General that the price had hit bottom.
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