Greek liquidity under ECB scrutiny

The issue of cash flow in Greece will be among those to be discussed during Wednesday’s scheduled board meeting of the European Central Bank, with Greek central banker Yannis Stournaras informing his peers of liquidity conditions in this country.

Bank officials have informed Kathimerini that the situation has deteriorated due to political uncertainty but added that the outflow of deposits is manageable for now. They noted that the 2.5-billion-euro decline in deposits in December may be significant, but is not causing any problems thanks to the existing liquidity.

They explained that the drop in deposits last month is not natural and is a result of concern among account holders, households and enterprises regarding the election result and the possibility of a clash with the eurozone. Because of this a number of corporations are shifting funds abroad for safety reasons, while many households are withdrawing larger amounts of cash to be prepared for any event.

There is additional pressure on liquidity from treasury bill issues: New T-bills will start being issued today and the state expects to draw a total of 2 billion euros. Local banks appear very reluctant to purchase the new paper, but don’t really have any choice. This new issue is being made to repay older issues that are maturing.

Credit sector officials say that the state has so far issued T-bills totaling 15 billion euros, mostly bought by domestic lenders. According to Greece’s bailout agreement, out of the 15 billion euros in T-bills, the banks can only use up to 3.5 billion between them as collateral. That means the state has deprived the private sector of resources amounting to some 11 billion euros.

Liquidity depends entirely on the ECB, which is why bank officials are stressing how important it is for the country to fulfill its obligations that secure its funding through the Eurosystem. As ECB sources have repeatedly underlined, as long as the country is in the bailout program, there is no question about the funding of banks. However if the rules are violated or any unilateral moves are made against the general European policy, the situation could very quickly become complicated.