Greek debt crisis: European Central Bank rejects Greek bonds as collateral for loans

The European Central Bank (ECB) has cut off Greek banks' access to a key source of much-needed cash, piling fresh pressure on the country's new government to reach a deal with international creditors.

In a decision that rattled financial markets, the ECB said it would no longer allow Greek banks to use government debt, which has a junk rating, as collateral for loans.

The Greek finance ministry was quick to insist that the country's banking system remained "adequately capitalized and fully protected", with other liquidity channels still available.

The ECB announcement came just hours after new Greek finance minister Yanis Varoufakis held his first talks with ECB chief Mario Draghi as part of his push to renegotiate his country's 240-billion-euro ($350 billion) European Union-International Monetary Fund bailout.

The unexpected ECB move follows an appeal from Greece's New Leftist government to the ECB to keep its banks afloat, as it seeks to negotiate debt relief with its eurozone partners.

The ECB has now effectively refused that request, adding to Greece's problems. Germany rejected any roll-back of agreed austerity policies.

The ECB move was a setback for Mr Varoufakis, who had earlier pledged speedy talks with international lenders on setting up a new program of reform, after abandoning its earlier aid plan.

It puts Greek banks in a difficult position.

Two Greek banks had reportedly already begun to tap emergency liquidity assistance from the Bank of Greece after an outflow of deposits accelerated after the victory of the hard left Syriza party in a general election on January 25. The health of Greece's big banks is central to keeping the country afloat.

(Πηγή: www.abc.net.au)