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ECB to discuss Greek bank aid after Euro-area leaders reach deal
[FRANKFURT] European Central Bank officials are set to discuss their liquidity aid for Greek lenders, after euro-area politicians reached agreement on the country's bailout in all- night talks in Brussels.
With the country's banks closed, capital controls in place and cash running short, the ECB is currently Greece's only lifeline. European Union President Donald Tusk said on Twitter early Monday that euro-area leaders unanimously reached a deal after almost 17 hours of negotiations.
The deal will include a recapitalization of Greek banks.
The ECB's Governing Council will now assess whether it can maintain Emergency Liquidity Assistance, a credit line that has been capped since political progress faltered at the end of June. The decision may hang on whether officials believe Greek Prime Minister Alexis Tsipras can pass legislation enacting economic reforms by Wednesday, as the euro area has demanded.
"The ECB is likely to keep the ELA ceiling at the current level of 89 billion euros and to moderately increase it only after approval of reforms by the Greek Parliament on Wednesday," Antonio Garcia Pascual, an economist at Barclays Plc in London, said before the deal was announced.
"The agreement on the program, the commitment to implement structural reforms and, more importantly, the 20 July payment to the ECB are likely to be the necessary conditions" for easing ELA, he said.
While ECB President Mario Draghi has repeatedly signaled policy makers will take their lead from political developments, a looming 3.5 billion-euro debt payment due from Greece to the ECB on July 20 is forming a hard deadline. Draghi left the summit without commenting to reporters.
Governing Council members have become more skeptical on providing further aid as confrontation between the anti- austerity government and its creditors has worsened, and after Greece missed a payment to the International Monetary Fund at the end of June.
"The Eurosystem should not increase the liquidity provision, and capital controls need to stay in force until an appropriate support package has been agreed," ECB Governing Council member Jens Weidmann said on July 9.
"Central banks, although they have the means, have no mandate, in my view, to safeguard the solvency of banks and governments." The ECB could ask euro-area leaders to guarantee the Eurosystem's emergency loans if the political process drags on.
A bailout agreement is unlikely to be rubber-stamped before July 20, so creditors discussed bridge financing to avert a default, officials said. A European Union official rejected the idea that the ECB is willing to postpone the debt payment.
Read more on the Greek crisis here