LONDON: Europe’s stock markets pulled back Thursday after the ECB restricted Greek banks’ access to a key source of cash and Germany signalled its unwillingness to reduce Athens’ debt.
Investor sentiment experienced only a partial boost after the European Union hiked this year’s growth forecast for the struggling eurozone but confirmed that deflation would take hold.
London’s FTSE 100 index slid 0.27 percent to 6,841.49 points, after the Bank of England held its key interest rate at a record-low 0.50 percent as expected.
Frankfurt’s DAX 30 shed 0.43 percent compared with Wednesday’s close to 10,864.77 points, and in Paris the CAC 40 receded 0.35 percent to 4,680.07.
Athens stocks plunged more than nine percent in early trading before recovering some of its losses to stand at 818.29 points, down 3.51 percent from Wednesday.
The Madrid market sank 0.79 percent and Milan dropped 0.94 percent in value.
In foreign exchange activity, the euro rose to $1.1421 from $1.1334 late in New York on Wednesday.
“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 is has also raised the risk that Greece could be forced into a default,” said Rabobank analyst Jane Foley.
“In reflection of this risk there have been some movements higher in bond yields in Italy, Spain and Portugal … and euro/dollar is being pressured.”
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.
Greek debt has a junk credit rating and, under ECB rules, should not qualify as collateral.
But Greece had been granted a waiver because of the country’s dire economic situation.
The ECB’s decision to take away that measure is seen as adding extra pressure to Greece’s 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. Sources said the ECB has authorised Greek banks to borrow up to 60 billion euros under this facility.
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 not on the negotiating table.
Germany has underwritten the largest part of the European help to Greece.