The European Central Bank held off from expanding its aid for Greek lenders, signaling a desire to wait for the country’s lawmakers to approve reforms linked to a new bailout.
The Governing Council kept the cap on Emergency Liquidity Assistance unchanged in a conference call on Monday, an ECB spokesman said. Policy makers will probably wait for a two-day meeting in Frankfurt starting Wednesday before deciding whether to raise the limit, euro-area officials said on condition of anonymity. An ECB spokeswoman declined to comment.
Greece’s parliament will convene on Wednesday to vote on a bailout package that includes a bank recapitalization, potentially giving the ECB room to ease its liquidity restraints. The program was agreed by euro-area leaders with Greek Prime Minister Alexis Tsipras in almost 17 hours of talks in Brussels as the basis of a third bailout that can keep the country in the euro.
“If there hadn’t been an agreement, if it wasn’t clear, the ECB wouldn’t have been able to continue its liquidity support for Greece,” French President Francois Hollande told reporters after the summit. “It will take a few more days” for conditions in the financial system to ease, he said.
The 25 billion-euro ($28 billion) equity infusion for banks envisaged by the bailout may provide grounds for policy makers to eventually raise the cap on ELA.
Greek banks have been shut since the ECB’s June 28 decision to cap ELA at just under 89 billion euros. They can still cope through Wednesday without the need to curb ATM withdrawals further, a Greek official said on condition of anonymity because the matter is confidential.
ECB President Mario Draghi has repeatedly said he would take his lead from political developments. His task was becoming trickier as negotiations dragged on, with a 3.5 billion-euro debt payment from Greece to the ECB due on July 20.
The Governing Council’s meeting this week is a scheduled monetary-policy discussion at which interest rates and policy for the euro area will be set. Draghi will hold a press conference at 2:30pm Frankfurt time on Thursday.
As part of Greece’s bailout deal, a 50 billion-euro fund will be established which will be financed by Greek asset sales.
“The first 25 billion euros raised through this fund would go for the recapitalization of the banks,” Maltese Prime Minister Joseph Muscat said after the summit. “The rest will be split in half, which would repay debt and the other half would go toward new investments.”
Greek banks have little room for maneuver. Depositors withdrew about 40 billion euros between December and June. Account holders are barred from withdrawing more than 60 euros a day.
Governing Council members became more skeptical on providing further aid as confrontation between the anti- austerity government and its creditors worsened, and Greece missed a June 30 payment to the International Monetary Fund.
“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.