Europe: Stocks shrug off Greek debt clash

[LONDON] Europe's stock markets shrugged off concerns about Greece Thursday after the ECB restricted Greek banks' access to a key source of cash, and Germany signalled its unwillingness to reduce Athens' debt.

After spending most of the day in negative territory, Europe's main stock indices were pulled back up in late trading by gains on Wall Street and ended the day near the break even point.

London's FTSE 100 ended the day up 0.09 per cent to 6,865.93 points, and in Paris the CAC 40 managed a small gain of 0.15 per cent to 4,703.30 points.

Frankfurt's DAX 30 index slipped 0.05 per cent to 10,905.41 points, while the Madrid market sank 0.50 per cent and Milan dropped 0.58 per cent in value.

However, Athens stocks plunged more than nine percent in early trading before recovering some of its losses to close the day down 3.4 per cent.

In foreign exchange activity, the euro rose to US$1.1439 from US$1.1334 late in New York on Wednesday.

In an announcement late Wednesday, the European Central Bank said it would no longer allow Greek banks to use government debt as collateral for loans.

"The ECB's decision wasn't expected so the shock value sent global shares lower," said analyst Jasper Lawler at CMC Markets UK.

Greek debt has a junk credit rating and, under ECB rules should not qualify as collateral, but had been granted a waiver because of the country's dire economic situation.

With Greek banks practically the only buyers of the government's debt, the ECB move is seen as adding extra pressure on Athens' new government to strike a deal on the massive debts stemming from its international bailout.

But the ECB did not pull the plug on emergency liquidity assistance to Greek banks, which should help protect them against a possible run by depositors. Sources said the ECB has authorised Greek banks to borrow up to 60 billion euros under this facility.

"The decision by the ECB to no longer accept Greek bonds as collateral may be aimed at piling the pressure on Greece to request an extension of its current bailout beyond February 28, but it has also raised the risk that Greece could be forced into a default," said Rabobank analyst Jane Foley.

Greece's new anti-austerity government came to power on a promise to renegotiate the country's 240-billion-euro EU-IMF bailout and erase over half the country's debt.

German Finance Minister Wolfgang Schaeuble indicated after a meeting with his Greek counterpart Yanis Varoufakis that a debt reduction was out of question, but didn't rule out other measures to ease the financial burden on Athens.

Germany has underwritten the largest part of the European help to Greece, and has been the main architect of the austerity policy that the new Greek government wants to reverse.

Investor sentiment received a boost after the European Union hiked this year's growth forecast for the struggling eurozone to 1.3 per cent, but confirmed that deflation would take hold.

AFP