ECB Said to Plan Review of Greek Emergency Liquidity on Monday

Updated on
Weekend Is Crucial for Greek Crisis: Blanchflower

The European Central Bank will review Greece’s emergency funding for its lenders again on Monday, a European Union official said, after the limit on the cash was raised on Friday for the second time in three days.

The Governing Council increased the cap on Emergency Liquidity Assistance in a telephone conference, other people familiar with the matter said, without specifying the amount of the rise. All the people asked not to be named because the discussion was private. An ECB spokesman declined to comment.

The ECB’s decision to revisit the ELA discussions on Monday is a signal to Greece that its situation is serious, the official said. European leaders will hold an emergency summit the same day, though concern is rising that talks on Greece’s bailout program will fail to avert a government default that tips the nation’s lenders into insolvency.

“The ECB’s decision to increase the ELA allowance today suggests that the Greek banking system will receive whatever support is needed to allow the political process to work through to the end of the EU leaders’ summit,” said David Mackie, an analyst at JPMorgan Chase Bank in London. “Unless Greece reaches a deal by the end of Monday, capital controls look likely to be needed next week, as Greek banks reach the limit in terms of collateral availability.”

Deposit Flight

The latest increase in ELA will ensure banks have enough cash to operate through Monday, the official said.

The Greek central bank had requested more than 3 billion euros ($3.4 billion). It was granted an increase of 1.1 billion euros on Wednesday, taking the total to 84.1 billion euros.

Talks by euro-area finance ministers to unlock bailout funds ended in acrimony on Thursday. Amid the uncertainty, deposit withdrawals from Greek banks have exceeded 4 billion euros this month, with the pace of outflows markedly accelerating this week, a person familiar with the matter said. About 1.85 billion euros was withdrawn in the last two days alone, the person said, asking not to be named, as he wasn’t authorized to speak publicly on the matter.

ECB President Mario Draghi said this week that liquidity will be extended to Greek banks as long as they are solvent and have sufficient collateral. He also said the ECB is monitoring closely to see if those conditions change.

Collateral Guarantees

Greece’s existing bailout accord expires on June 30 and it’s due to make payments totaling about 1.54 billion euros to the International Monetary Fund by the end of this month.

Greek banks’ capital levels and collateral values rely heavily on state guarantees on their assets, meaning any risk of default creates doubts over their creditworthiness.

“The ELA decision shows how unpleasant the Greek situation has become for the ECB,” said Bloomberg Intelligence economist Maxime Sbaihi. “Central bankers don’t want to be dragged into the political game but they can’t close their eyes on the deteriorating situation of the Greek banking sector. Today’s decision can therefore be seen as a short-term solution aimed at waiting for Monday’s political moves while keeping the pressure high enough for leaders to stop the procrastination.”

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