Opinion
Why Greece’s Leftist Syriza Will Bow Down to Market Pressures
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As talks break down between Greece and international lenders, it’s clear there are few options left for the country’s economy to stay afloat.
By Nicholas Economides
As talks break down between Greece and international lenders, it’s clear there are few options left for the country’s economy to stay afloat.
Greek stocks and bonds plunged on Thursday after the European Central Bank said that it would stop accepting Greek bonds as collateral for central bank loans. Greek Finance Minister Yanis Varoufakis had pleaded with ECB chairman Mario Draghi to allow Greek banks to buy $11.4 billion more in Treasury bills so that Greece is financed for a few more months. Draghi refused and deferred it to the Council of Finance Ministers of the Eurozone. If the ECB objection stands, the Greek government may ask depositors to directly buy 3- and 6-month Treasury bills, a plan very unlikely to succeed. Therefore, Greece could run out of money as soon as March.
Greek banks are very squeezed. Out of $160 billion in total deposits, Greece withdrew $11 billion to $23 billion in January because of the uncertainty implied by the elections and Syriza victory. Now Greek banks “live” with $114 billion in liquidity provided by the ECB. That’s not much, and to make matters worse, that liquidity is conditional on “being in the rescue plan,” which the Greek government rejects. The rescue plan ends on February 28, so Greek banks could collapse on March 1st and Greece could find itself in a New Drachma.
Read full article as published in Fortune
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Nicholas Economides is a Professor of Economics.
Greek stocks and bonds plunged on Thursday after the European Central Bank said that it would stop accepting Greek bonds as collateral for central bank loans. Greek Finance Minister Yanis Varoufakis had pleaded with ECB chairman Mario Draghi to allow Greek banks to buy $11.4 billion more in Treasury bills so that Greece is financed for a few more months. Draghi refused and deferred it to the Council of Finance Ministers of the Eurozone. If the ECB objection stands, the Greek government may ask depositors to directly buy 3- and 6-month Treasury bills, a plan very unlikely to succeed. Therefore, Greece could run out of money as soon as March.
Greek banks are very squeezed. Out of $160 billion in total deposits, Greece withdrew $11 billion to $23 billion in January because of the uncertainty implied by the elections and Syriza victory. Now Greek banks “live” with $114 billion in liquidity provided by the ECB. That’s not much, and to make matters worse, that liquidity is conditional on “being in the rescue plan,” which the Greek government rejects. The rescue plan ends on February 28, so Greek banks could collapse on March 1st and Greece could find itself in a New Drachma.
Read full article as published in Fortune
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Nicholas Economides is a Professor of Economics.