Greek Banks on Hold for Cheap ECB Cash as Creditors See Progress

  • Draghi says ECB took no decision on waiver for Greek lenders
  • Talks continuing over “last bits and pieces”: Dijsselbloem

Greek lenders will have to wait a bit longer before regaining access to cheap European Central Bank money.

Mario Draghi said the Governing Council of the ECB will consider reinstating a waiver allowing the country’s banks to pledge junk-rated collateral in exchange for regular liquidity after auditors representing creditor institutions verify that Greece has completed all pending prior actions attached to the Greek bailout program.

“We had a presentation, we had no decision,” the president of the ECB said after a monetary policy meeting in Vienna Thursday. “It will require another policy meeting,” he said, even as he acknowledged “significant progress” from Athens in complying with the structural economic overhauls demanded by euro area states.

An international official involved in the talks between Greece and its creditors said before the meeting a few small details remained in the review, with final sign off on the deal likely early next week. The official asked not to be named as he wasn’t authorized to speak publicly on the matter.

Waiver Revoked

The ECB revoked the waiver on Greek collateral in February last year when the government of Alexis Tsipras said it wouldn’t complete its aid program at the time because of the austerity measures required, forcing the nation’s banks onto costlier Emergency Liquidity Assistance. The prospect of the waiver’s reinstatement after the government subsequently agreed to a new bailout has acted as an incentive for it to wrap up the first program review.

A successful conclusion of the negotiations is also a key condition for Greece to be included in the ECB’s government-bond purchase program.

Tsipras told ministers in Athens on Thursday that the waiver will be probably reinstated in the next ECB Governing Council meeting, while Greek government bonds will become eligible for the ECB’s so-called quantitative easing program of bond purchases as early as July. Greek bank stocks fell as much as 3.7 percent on the news on Thursday, after gaining almost 21 percent in May on the expectation the waiver would be reinstated.

Pension Reform

Euro-area finance ministers approved disbursement of a sub-tranche of a 7.5 billion-euro loan ($8.4 billion) from the Greek bailout on May 25, on the condition of pending “corrections to the legislation on the opening up of the market for the sale of loans, and on the pension reform,” as well as the conclusion of pending actions related to privatizations. The government submitted amendments with changes to the legislation late Wednesday.

“I believe we’ve turned an important corner,” Eurogroup head Jeroen Dijsselbloem told reporters in Brussels on Thursday. “The Greeks are talking to the institutions to get the last bits and pieces done so the next tranche can be paid out, can be disbursed from the” European Stability Mechanism.

The governing council approved a 1 billion-euro reduction of the amount of ELA available to Greek banks to 68.1 billion euros, the Athens-based Bank of Greece said in a statement on Thursday, following an improvement in liquidity conditions for Greek lenders. Greek banks have lost a quarter of their deposits since the elections which catapulted Tsipras to power were called, in late 2014, amid doubts about the country’s place in the euro area.

“The governing council acknowledged the significant progress made in the last few months,” Draghi said. “We also have to see what the ESM board of directors will decide. But as I said, there will be a decision leading to the reinstatement of the waiver.”

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