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ECB, EU promise lifelines for Greece as crisis haunts eurozone

16 October 2014, 15:46 CET
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ECB, EU promise lifelines for Greece as crisis haunts eurozone

Photo © vieraugen - Fotolia

(ATHENS) - The ECB and European Union rushed to reassure financial markets on Thursday that help is at hand for Greece as it heads for a high-risk exit from its debt-rescue programme.

The European Central Bank, which manages how funds are fed into the eurozone economy, is promising an extra cash lifeline for Greek banks if the government sticks to its bailout programme, the Greek central bank said.

In Brussels, the European Union said it would go on helping twice-bailed out Greece "in whatever ways necessary", as European stock and bond markets were seized by panic at the potential fallout for the single-currency bloc.

"There will be no doubt that Europe will continue to assist Greece," Economic Affairs Commissioner Jyrki Katainen said in a statement read out by his spokesman.

The decision on extra help for Greek banks was taken late on Wednesday by ECB bank governors in Frankfurt after the Athens stock market plunged for two days running.

Yields on Greek bonds had shot up as investors worried about the government terminating the bailout plan. On Thursday the 10-year bond yield rose further to 8.656 percent from 7.854 percent.

The ECB has decided to reduce the markdown on the value of assets which Greek banks have to put up to borrow cash, making up to 12-15 billion euros of additional funds available to them.

The Athens stock market plunged 5.7 percent on Tuesday and 6.3 percent on Wednesday. It had slid another 2.2 percent to close at 869.16 points on Thursday.

- 'Greece still needs help' -

Analysts have said investors are concerned that Greece will not be able to stand on its own two feet if, as the government has signalled it may do, it terminates its IMF programme early.

Greece's EU aid ends in December but under its IMF programme, which lasts until 2016, there is still $16 billion (12.5 billion euros) available.

After four years under a rescue by the IMF, EU and European Central Bank -- the so-called troika -- worth about $300 billion overall, Athens has largely repaired its finances.

The country is eager to get free from the tight budgetary and policy auditing exercised by the International Monetary Fund, European Union and European Central Bank.

Political uncertainty has also sapped market confidence.

Analysts see an early bailout exit as a move to bolster the political fortunes of the centre-right, socialist coalition government of Prime Minister Antonis Samaras.

The strict bailout conditions have led to the left-wing anti-austerity Syriza party taking the lead in opinion polls, outpacing the coalition parties together.

Political observers believe exiting the bailout would help Samaras gain the extra votes the coalition needs to ensure the election of a president next year, without which an early vote would be triggered.

French Finance Minister Michel Sapin said Thursday in Paris that "Greece still needs help".

He said the country had made considerable progress, "but you have to pay the attention to when you venture out alone on the international markets".

But Greek Finance Minister Guikas Hardouvelis said the market turbulence "does not reflect the position or prospects of the Greek economy".

 


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