ECB Spares Greece for Now as Schaeuble Seeks Substance on Plans

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The European Central Bank continued its lifeline to Greece as euro-area nations warned the country still faces a battle to release financial aid.

The ECB’s Governing Council opted against tightening terms of Emergency Liquidity Assistance and raised the cap on funding by 1.1 billion euros ($1.2 billion) to 80 billion euros in a telephone conference on Tuesday, according to people familiar with the matter. The decision followed a statement by euro-area finance ministers on Monday recognizing Greece’s new willingness to meet the requirements for more bailout cash.

Now Greece needs turn its promises into policy action to satisfy its creditors and access funding, or it risks running out of cash within weeks.

“The atmosphere in talks has improved,” German Finance Minister Wolfgang Schaeuble told reporters Tuesday. “There’s not a whole lot new in substance.”

Less than three weeks after a Greek aid meeting broke up in taunts and acrimony, Finance Minister Yanis Varoufakis assured euro-area governments that his country is aiming to strike a bargain to win the final installments of its 240 billion-euro ($270 billion) aid program. The money will be crucial for Greece to pay its bills on time -- Varoufakis said Monday that current funds will run out soon.

“The liquidity issue is a terribly urgent issue,” he said. “We are talking about the next couple of weeks.”

Emergency Funds

The yield on Greece’s 2.1 billion euros of 3.375 percent bonds due 2017 fell 15 basis points, or 0.15 percentage point, to 20.7 percent Tuesday. That’s down from 29.1 percent on April

21.

The ECB could still decide to increase the discount on the collateral Greek banks post when tapping emergency funds -- making it harder for lenders to get the cash -- at next week’s council meeting in Frankfurt. While some officials have pushed for collateral haircuts, the ECB has been waiting for the politicians’ assessment of the state of play.

Amid the uncertainty, deposits continue to rush out of Greece’s financial system. Net deposit outflows from Greek banks accelerated in April to about 7 billion euros, two people familiar with the matter said. In March, the banking system’s deposits fell to their lowest level since January 2005.

Collateral Haircut

To stave off default, Greece resorted to a series of emergency measures to make a 750 million-euro payment to the International Monetary Fund that was due Tuesday. To pay the bill on time, Greece tapped 650 million euros of its IMF reserves, Kathimerini newspaper reported without saying how it got the information.

Greece has also raised 600 million euros so far from a decree ordering public entities to transfer their cash reserves to the Bank of Greece for use in short-term financing operations, according to an e-mailed government statement. As a result, Greece is on track to meet its end-of-May pension payments -- but the plans assume Greece can reach a deal with creditors by month-end to replenish its reserves.

Monday’s meeting also opened the door to partial payments from 7.2 billion euros remaining in Greece’s rescue program. Dutch Finance Minister Jeroen Dijsselbloem, who leads the euro-area ministers’ group, said funds could be disbursed as Prime Minister Alexis Tsipras’s government passes pieces of economic legislation.

For more, read this QuickTake: Greece's Fiscal Odyssey

“Each week becomes more precious than those that have passed because the weeks remaining are fewer and fewer,” French Finance Minister Michel Sapin said Tuesday. “There is no precise timetable but the faster the better.”

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