ECB rolls its tanks onto the lawn as Greece’s PM faces a party mutiny

May 19, 2015, 10:06 AM UTC
The Greek Prime Minister Alexis Tsipras presented a session
HELLENIC PARLIAMENT, ATHENS, ATTICA, GREECE - 2015/03/30: The Greek Prime Minister Alexis Tsipras presented a session to the countrys parliament about the discussions with the country's creditors. He also wanted an "honest compromise" as the cash-strapped country battled with eurozone creditors over a new bundle of the reforms that are needed to solve vital bailout funds. (Photo by Wassilis Aswestopoulos/Pacific Press/LightRocket via Getty Images)
Photograph by Wassilis Aswestopoulous — Pacific Press/LightRocket via Getty Images

The European Central Bank quietly rolled its tanks onto the lawn Tuesday, by reminding financial markets of the firepower it can deploy if it has to cope with a Greek exit from the Eurozone.

In a speech in New York, ECB board member Benoit Coeure said the bank would accelerate its purchases of bonds between now and the end of June, while at an event in Paris Tuesday, Bank of France governor Christian Noyer promised that the ECB can provide even more monetary stimulus if needs be.

Neither tied their comments to the situation in Greece. But financial markets understood them as a clear statement of intent to make sure that if Greece is forced into a messy default, it can contain the damage. The yield on the benchmark German 10-year bond fell 10 basis points to 0.57% in response, its lowest in a week.

Coeure said moving up the bond purchases makes sense because trading in the bond markets quietens down in the summer, meaning that the ECB’s interventions would have a larger effect. Noyer, in turn, tied his comments to meeting the ECB’s inflation target of just under 2%. The headline annual rate of inflation stayed at 0% in April, Eurostat confirmed Tuesday, although the ‘core’ rate, stripped of energy and food prices, rose by a robust 0.3% on the month.

The ECB bankers’ comments come a day after a mutiny erupted in the ranks of Greek Prime Minister Alexis Tsipras’ Syriza party, as a group of hardline left-wingers, including five from the party’s top committee, published a call for a complete ‘rupture’ with the country’s creditors.

The rebels called for Greece to default on its lenders, put the country’s banks under state control, impose new taxes on the rich and introduce capital controls.

The call is the clearest sign yet that of how Syriza’s unity is crumbling under the pressure of recession and imminent bankruptcy. The party, which has always been a coalition of various strands of left-wing thinking, is dividing between those who have used fiery anti-austerity rhetoric just as a negotiating tactic from those who believe in pushing it to its logical conclusion.

In public appearances late Monday, Tsipras and his finance minister Yanis Varoufakis were both still trying to persuade Greeks that they can have it both ways–rejecting austerity but keeping the euro. (That message is increasingly losing credibility with the people, according to a new survey by the University of Macedonia – see chart below.)

Question: Do you see the government's strategy (vis-à-vis the creditors) as correct?
Question: Do you see the government’s strategy (vis-à-vis the creditors) as correct?Berenberg Bank
Berenberg Bank


“A different currency is not on our radar,” Varoufakis said in an interview with TV channel Enikos, adding in the next breath that: “What is also not on our radar is to sign an unsustainable agreement.”

Tsipras, meanwhile, repeated in a speech that he wouldn’t agree to cut pensions, one of the key stumbling blocks in discussions with the creditors.

Both promised that a deal with creditors was near. But a draft of a compromise proposal from the European Commission that leaked Monday suggested that the creditors were still refusing to budge on many issues.

The hardliners’ revolt makes plain what has been rumored for some time now: that the government won’t be able to command a majority to pass a deal through parliament unless it relies on opposition parties. Tsipras has already mooted a referendum on any deal, implicitly conceding that he won’t get his party to accept it.

“Almost all opposition parties are urging the Syriza government to reach an honest and mutually beneficial agreement, but the opposition is coming from the Syriza party itself,” Constantine Michalos, chairman of the Union of Hellenic Chambers of Commerce, told CNBC Tuesday.