The new Greek prime minister Alexis Tsipras and his finance minister Yanis Varoufakis continued last week their tour of the EU capitals to find understanding for their plan to restructure Greek sovereign debt, reaching 175% of GDP. Earlier, France had indicated that a compromise could be possible – no debt cut-off, but possible extension of maturity of the bonds. Last week, Mr Tsipras found a sympathetic ear in Italy, where Matteo Renzi, the prime minister, expressed his support for such a compromise. Nevertheless, reforms are necessary and not every opinion of Mr Tsipras is shared, Mr Renzi said. Mr Renzi opposes somehow the austerity policies prescribed by Germany, too, but his country needs reforms acutely. At the end of his visit, Mr Tsipras received a silk tie from his Italian counterpart, which he said he would wear once a deal is made on Greek debt. Mr Tsipras in known for never wearing a tie.

Meanwhile, Mr Varoufakis went to Frankfurt and Berlin with yet another idea – to swap existing Greek bonds, of which majority is held by institutional lenders, the eurozone, the ECB and the IMF, with special bonds indexed to Greek economic growth. He said he had a constructive discussion with ECB President Mario Draghi on Wednesday 5 February. However, the ECB made an unexpected and very strict move on Thursday evening. At a special meeting of the Governing Council, the central bank lifted its waiver of minimum credit rating requirements for bonds used as collateral when lending money to Greek central banks. Normally, the ECB lends money to commercial banks and receives covered bonds as collateral. These need to have investment rating. Greek bonds, on the other hand, are still seen as junk and were only accepted as collateral thanks to the waiver by the ECB, awarded in exchange for a reform program. In its statement the ECB now indicated that there is no longer a certainty that the reform program will last. The central bank therefore lifted the waiver, thus effectively stopping massive inflow of euros for Greek banks. This step will be effective from 11 February and it is expected that Greek banks will run into trouble very soon without the ECB loans. There is another possibility still – the Greek central bank can lend money to Greek commercial banks, but under different conditions, much less favorable. With its unexpected move, therefore, the ECB sent a very strong signal to the new Greek government. With a single step it has put Greek banking system into disarray, at least potentially. Also, the loans from Greek central bank can also be stopped by the ECB, so the ECB has some more leverage still. In the past, such pressure from the ECB pushed the Irish and Cypriot governments into subscribing to programs and this time the motive is clearly similar.

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