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ECB maintains Greek bank funding but with tougher terms
[FRANKFURT] The European Central Bank Monday maintained a key financial lifeline to Greek banks in the wake of Greece's historic referendum but with tougher conditions for liquidity.
In an evening conference call on Greece's cash crisis, the ECB's governing council said it would continue supplying aid but raised the bar for banks to access the funds.
The ECB "decided today to maintain the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on 26 June 2015 after discussing a proposal from the Bank of Greece," the Frankfurt-based bank said in a statement.
At the same time, the eurozone central bank also noted that ELA can only be provided against sufficient collateral, putting more pressure on the debt-wracked country.
It said Greece's financial situation had hit its banks "since the collateral they use in Emergency Liquidity Assistance relies to a significant extent on government-linked assets".
"In this context, the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA," the statement said, a move that will make it more difficult to access ELA funds in future.
Germany's Die Welt newspaper reported that Athens had sought to increase its ELA limit by around 6.0 billion euros (S$8.9 billion) but that the ECB had held it at roughly 89 billion euros.
Financial markets and analysts had been waiting to learn whether the ECB would continue to provide emergency liquidity to Greek banks and keep the economy afloat after 61 percent of Greeks voted against further austerity measures in Sunday's plebiscite.
Until now, the central bank has agreed to keep Greek banks - and, by extension, the debt-wracked Greek economy - on life support via ELA.
But the overwhelming 'No' vote had made it more difficult for the ECB to justify keeping that channel open.
"The ECB's hands are tied by rules," the head of the Austrian central bank, Ewald Nowotny, told Austrian public broadcaster ORF earlier.
"We have to assess the situation each time anew. And I'm afraid that events in Greece have not made it easier for us." Bloomberg News cited a Greek official, speaking on condition of anonymity, as saying that Greek banks could cope with the new terms, noting the ECB didn't impose a hard deadline on the country.
The ECB will review its decision on Wednesday, a bank source said, the day after an emergency summit of eurozone leaders on the Greek crisis.
Analysts had earlier noted the ECB's difficult choices.
"Without a clear prospect of an immediate bailout deal that could prevent a full-scale sovereign default... it is very hard for the ECB to authorise continuing emergency support for Greek banks, let alone to allow an increase in such support," said Berenberg Bank economist Holger Schmieding.
"While politicians in the eurozone are preparing for possible new talks, it is once again up to the ECB to do the dirty work," said ING DiBa economist Carsten Brzeski.
ELA is currently the only source of financing for Greek banks, and therefore the Greek economy. But with Greece's bailout programme now officially expired and in the absence of any new programme, the conditions for its continuation are no longer met.
But analysts believe the ECB will not want to be the one to pull the plug on Greece and force the country out of the single currency.
"As long as eurozone politicians will signal their willingness to negotiate with Athens, the ECB will keep ELA at its current levels," said Brzeski.
Until now, the Frankfurt-based ECB has pulled out all the stops in a bid to prevent a so-called "Grexit" - or Greek exit from the eurozone.
But some of the ECB governing council members believe that constantly violating the single currency's rules, as Greece is perceived to have done, is just as destructive.
For that reason, the head of the German central bank or Bundesbank, Jens Weidmann, has consistently voted against ELA in recent weeks. A two-thirds majority would be needed on the 25-seat board to shut down ELA.
Deutsche Bank economist George Saravelos predicted that for Greek banks, ELA liquidity was likely to be fully exhausted over the next few days.
That would leave cash machines empty and Greece would no longer be able to finance imported goods via outgoing payments.
The ECB's patience is unlikely to last forever and could run out later this month, when Greece is due to repay 3.5 billion euros in loans to the ECB on July 20.
Read more on the Greek crisis here