ECB’s move on Greek banks hampers Greece’s campaign to renegotiate bailout

The European Central Bank’s sudden move to crimp funding for Greek banks sent their stocks tumbling Thursday and laid bare a huge vulnerability in Greece’s campaign to renegotiate its European bailout.

The ECB announced on Wednesday evening that it would no longer accept Greek government bonds as collateral for its loans to banks in the country. While freshly recapitalized—partly with bailout money—Greek banks still rely on the central bank for short-term loans that keep them operating from day to day. That reliance now threatens to reduce the new Greek government’s ability to bargain with its eurozone creditors.

Greek Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis continue meeting European leaders to try to sway them to compromise. After meeting with Mr. Varoufakis in Berlin Thursday, German Finance Minister Wolfgang Schäuble told a press conference that he and Mr. Varoufakis had “agreed to disagree”; Mr. Varoufakis said he wasn’t sure they’d even agreed on that.

A banking collapse would be catastrophic for Greece and could well force it out of the euro. But the ECB says it will only keep the banks afloat if Greece is cooperating with its bailout program. The new government, led by Prime Minister Alexis Tsipras’s leftist party Syriza, campaigned on a promise to repudiate that program.

Thursday, Greek bankers said the ECB’s move wouldn’t immediately hamper their operations. The ECB’s edict comes into effect next week, and when it does, the banks can shift to getting funding from an emergency facility maintained by the Bank of Greece.