Greece shares tumble as European Central Bank tightens its grip on Athens

The ECB said it would stop lending to Greek banks using the nation's government bonds as collateral

Greek Finance Minister Yanis Varoufakis arrives at the German Finance Ministry to take part in bilateral talks with his German counterpart Schaeuble in Berlin, Germany, on 5 February, 2015 (EPA)

Nervous investors dumped Greek shares today – as the European Central Bank tightened its grip on the country’s banking system.

Shares on the Athens stock exchange dropped nearly 10 per cent on opening, but later recovered and were trading later about 6 per cent down. European markets also dropped, with the Euro Stoxx 50 index down 0.6 per cent.

In a surprise announcement yesterday the ECB said it would stop lending to Greek banks using the nation's government bonds as collateral, thereby piling pressure on Prime Minster Alexis Tsipras' new anti-austerity government to seek a compromise with bailout creditors.

The ECB justified the move by saying prospects appear uncertain for a new deal between the radical left government in Athens and its international bailout creditors. Greek banks retain access to emergency lending, but at a higher cost and subject to ECB approval.

A defiant Greece said today it would not be "blackmailed" by its European Union partners but that it did want to find a joint solution to its debt and austerity crisis.

"Greece does not aim to blackmail anyone but will not be blackmailed either," a government official said, adding that Athens would respect the "popular mandate" it won in last month's snap election.

"The ECB's decision ... is an act of political pressure to quickly reach a deal."

Tsipras and his finance minister, Yanis Varoufakis, have been crisscrossing Europe to win support from partners for their plan to win debt relief and end austerity policies but have so far received little other than warnings to avoid reneging on commitments under the country's existing bailout programme.

Varoufakis has been hailed by some media as a "superstar", suggesting a disconnect between Europe's response and local expectations.

Adding pressure on Greece to strike a deal, a document prepared by Berlin showed it would not accept any effort by Athens to reverse reforms.

Government spokesman Gabriel Sakellaridis sought to play the move by the ECB as an effort by the central bank to put pressure on all European countries to find a deal to rescue Greece, rather than a message to Athens alone.

"Indeed, the European Central Bank is putting political pressure on all parties so that a solution is found quickly and negotiations and consultations of Greece do not drag on," he told Greece's Mega television.

"From our part, we are well disposed to finding such an agreement that will not violate the popular mandate we just received."

Tsipras is due to unveil the government's programme over the weekend, and a series of ministers have already insisted Athens would not go back on its word to raise the minimum wage, halt unpopular privatisations and rehire public workers fired without cause.

"We cannot be blackmailed, simply because we just got a fresh popular mandate," Administrative Reforms Minister George Katrougalos told Antenna television.

"We don't want a clash but we don't want submission either."

Additional reporting be agencies