Greece's True Deadline May be May 29
When does Greece finally run out of money? At what point will depositors have drawn so much cash out of the Greek financial system that its banks are essentially insolvent? And how long before Greece exhausts its bag of tricks, such as drawing down account balances at the International Monetary Fund to pay money owed to the International Monetary Fund? Here's a potential answer.
Greek banks have been increasingly reliant on emergency liquidity assistance from the European Central Bank since February. And because Greece's banks only have sufficient collateral to cover 95 billion euros ($106 billion) of ELA funding, extrapolating the growth in that reliance on a chart delivers a deadline -- May 29:
Of course, there's a huge caveat to this kind of extrapolation. The pace of Greece's appetite for ECB cash might decelerate, so the upper limit might not be reached so quickly. Or the ECB may decide it needs to be more generous in how it treats the collateral against which it's lending, which could raise the threshold. Or Greece's creditors might decide to release a portion of the funds the government in Athens is seeking, throwing it a lifeline in exchange for implementing at least some economic reforms.
At the same time, though, demand for ELA money has been rising consistently for three months, so it seems unlikely depositors will suddenly start tossing euros back into their Greek bank accounts between now and May 29. The ECB, for its part, seems more likely to tighten the discount it demands on Greek collateral than to loosen the reins. And while Finance Minister Yanis Varoufakis said on Monday that "we are very close" to an agreement, European Commission officials seem less convinced.
The ELA program already makes at least one ECB policymaker uncomfortable. "I don’t find it OK that banks without market access get loans to finance bonds of their own country, which is itself without market access," Bundesbank President Jens Weidmann said in interview published Monday by the Handelsblatt newspaper. "I’m concerned by the increased politicization of central banks, as well as the constantly rising expectations in us."
He's right to be worried. As Greece approaches the mathematical limit of its entitlements under the ELA program, the ECB may find itself in the untenable position of acting as judge, jury and executioner. Let's hope the politicians can find a solution before we get to that point, which is now just 10 days away.
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