ECB pushes Greece closer to euro exit

The ECB pushed Greece to the precipice of leaving the euro last night as it moved closer toward cutting off its money supply.

The signals from the politicians were not very positive either as German chancellor Angela Merkel said the latest moves by Greece were not enough.

Grexit could take a further step forward in Brussels today at an emergency meeting of eurozone finance ministers followed by a meeting of the leaders of the 19 countries that use the euro.

There was a flurry of meetings between creditor countries and within the ECB assessing the situation and the Greek far-left government moved quickly after winning a resounding 60% of the vote decrying the EU/IMF/ECB austerity programme.

Creditors would have preferred a yes vote that may have seen the government resign and replaced with one of national unity, possibly headed by a technocrat.

However, prime minister Alexis Tsipras fired finance minister Yanis Varoufakis, who had roundly insulted all the eurozone finance ministers and the negotiators over the past few months.

He replaced him with the more personable Euclid Tsakalotos, an Oxford-educated economist and long-time ally of Mr Tsipras in Syriza who had also taken over negotiations with Brussels some weeks ago.

Following a seven-hour long meeting with the heads of the main political parties, chaired by the Greek president, they issued a joint statement saying the vote was a mandate to continue trying to achieve “a socially just and economically sustainable agreement”.

The goal was to seek a solution that covered their financing needs, make reforms that distributed burdens fairly with least recessionary effects, a powerful programme for growth to battle unemployment, and a commitment towards the beginning of discussions on making the Greek public debt sustainable.

This did not appear to meet the requirements of Ms Merkel or French president Francois Hollande, who met in Paris yesterday to discuss the situation. Ms Merkel said that while they remain open to talks, “at the same time we say that the requirements for starting negotiations about a concrete ESM programme are not present at the moment”.

The Greek central bank extended the capital controls to tomorrow evening, but whether they will be in a position to continue allowing people withdraw €60 a day from their accounts after that will very much depend on the ECB.

If dramatic progress is not made with the Greek government conceding creditors’ demands today, it is likely the ECB will turn the screws tighter. It took a step in this direction last night with the announcement it would increase the haircut on Greek collateral it holds against ELA.

While there is still a buffer to allow the Greek Central Bank distribute €88bn a day a larger haircut would at the least reduce the amount of funds available, causing the banks to take a share of deposits, possibly even those worth less than the usual €10,000 ceiling according to some analysts.

The drying up of cash could force Greece to start printing its own money — effectively abandoning the euro.