The European Central Bank adopted a hard line on Greece's debt Thursday, dealing a major blow to Athens' efforts to secure improved bailout terms with its creditors. The ECB has revoked a waiver that allowed banks to use Greek government debt as collateral for loans, causing Asian stocks and the euro to hand back any gains made over the last few days.
The ECB, in a statement late Wednesday, said it was no longer able to assume there would be a successful conclusion to the Greek government's bailout talks with its lenders and that the suspension was in line with existing Euro system rules. They emphasized that the news has no impact on the counterparty status of Greek financial institutions.
"This news will likely scare depositors and result in further bank runs. This all said, if Greece can come to an agreement with the troika, I'm sure the ECB will reinstate the waiver," Peter Boockvar, chief market analyst at The Lindsey Group, wrote in a note after the announcement.
This decision is expected to put more pressure on the new Greek government to come to a deal on the country's bailout program.
MSCI's broadest index of Asia-Pacific shares outside Japan was down 0.1 percent after climbing 1 percent the previous day. Japan's Nikkei which surged 2 percent on Wednesday dropped 1 percent.
The Dow Jones Industrial Average, which had been up 100 points just before the ECB announcement, quickly turned negative after the news.