Greece's borrowing rate soars after ECB move

[PARIS] Greece's borrowing rate soared above the symbolic level of 10 per cent on Thursday, after the European Central Bank moved to restrict the country's banks' access to a key source of cash.

Shortly after 0800 GMT, Greek 10-year bonds were fetching yields of 10.051 per cent on the secondary market, up from 9.678 per cent on Wednesday.

In a statement late Wednesday, the ECB said that it would no longer allow Greek banks to use government debt as collateral for loans, depriving the banks of a key source of cash.

Greek debt has a junk credit rating and, under ECB rules, should not qualify as collateral for loans.

However, because of Greece's dire economic situation, it had been granted a waiver to that rule as long as Athens was deemed to be in compliance with the terms of its 240-billion-euro (US$270 billion) EU-IMF bailout.

But Greece's new hard-left rulers stormed to victory in elections on January 25 on pledges of renegotiating the bailout, casting uncertainty on its repayment plans.

The ECB statement came just hours after Greece's new Finance Minister Yannis Varoufakis held his first talks with ECB chief Mario Draghi as part of his push to renegotiate his country's bailout.

On Thursday, Mr Varoufakis is to hold his first talks in Berlin with German Finance Minister Wolfgang Schaeuble, whose country is seen as the strongest opponent of any easing in the terms of the massive debts Greece has built up.

ECB's announcement on Wednesday rattled financial markets, sending the euro tumbling by more than one per cent against the dollar, and prompting the Greek finance ministry to insist that the country's banking system "remains adequately capitalised and fully protected".

AFP