The European Central Bank is unlikely to pull the plug on emergency funding for Greek banks this week despite a standoff between Athens and its international lenders, according to sources.
The ECB's governing council meets on Wednesday and will review the provision of so-called Emergency Liquidity Assistance (ELA) to Greek banks, as Greece is at loggerheads with euro zone governments over the future of its international bailout, which expires at the end of this month.
Provision of the ELA funding is essential to the survival of Greece’s banking sector, and hence to the country’s continued membership in the euro zone. The ECB stopped accepting Greek bonds as collateral for funding on February 5th, shifting the burden of financing its lenders via ELA to Greece’s central bank.
However, the ECB retains control over that ELA funding, which is subject to tight conditions. The rules stipulate that national central banks can only grant such funding temporarily and to solvent banks. “There is no sudden end of ELA expected this week,” the person familiar with the situation said.
The ECB raised the cap on ELA for Greek banks by about €5 billion to €65 billion last week, Greek central bank and government officials told Reuters. The ECB added money because deposit outflows had picked up and to ensure Greek banks have liquidity while tense talks take place in Brussels, Greek banking sources said on Friday.
One banking source said recent daily outflows were in the region of 300 million to €500 million on average. ECB executive board member Peter Praet said last week that ELA is “only for very short needs” and stressed the rules on provision to solvent banks should be applied. Bundesbank chief Jens Weidmann has called for “strict standards with ELA”.
Taking a strict approach would leave the ECB in an awkward position if Greece failed to agree an extended, or new, bailout programme this week but nonetheless remained in the euro zone.
Greece’s existing programme runs out on February 28th. Offering a carrot to
Greece’s radical leftist government, Austrian central bank chief Ewald Nowotny also signalled last week that if it signed up to a reform programme, the ECB could replace this emergency funding with cheaper direct ECB finance.
European Union finance ministers piled pressure on Greece on Tuesday to remain in an international financial rescue programme as the euro weakened on fears of disruption when Athens' credit lines expire in 10 days time.
But as he returned to meetings on other, routine, matters with his EU counterparts in Brussels after the collapse of talks on Monday night, Greek finance minister Yanis Varoufakis dismissed their argument that his only option is to come back to them and ask to extend a bailout rejected by Greek voters.
“The next step is the responsible step,” he said, offering no detail on what Athens was willing to propose. “We will continue to deliberate, in order to enhance the chances and actually achieve a very good outcome for the average European.”
Jeroen Dijsselbloem, the Dutch finance minister who chairs the Eurogroup of 19 countries using the common currency, stuck to his guns, however, saying Athens must seek an extension: "It's really up to the Greeks. We cannot make them or ask them. We stand ready to work with them, also (over) the next couple of days."
Formally, Tuesday’s meeting of ministers from all 28 EU states concerns other matters. But time is short and investors marked down the euro and European shares after Monday’s debacle, some saying the risk of Greece exiting the euro had risen.
"The Greek government must shift its position," Austrian finance minister Hans Joerg Schelling said. "Time is pressing."
Mr Dijsselbloem has said Friday is a deadline for a deal that would give time for some national parliaments to ratify it before the expiry on February 28th of the €240 billion credit package that rescued Greece from bankruptcy three years ago.
Minister for Public Expenditure and Reform Brendan Howlin has said he hopes Greece will strike a deal with the European authorities in the coming days. He insisted the Government was very supportive of Greece.
“We want Greece to succeed. We want Greece to remain in the euro. But it has to be done obviously within the framework of the laws that govern the euro,” he said.
Reuters
