ELA necessary for T-bill issues

Greek banks will require additional liquidity amounting to 4.5-5.5 billion euros in February and March to cover scheduled and extraordinary issues of treasury bills – in other words, the cash needs of the state.

This huge amount explains to a great extent why the Bank of Greece has decided to activate the emergency liquidity assistance (ELA) mechanism.

There are two main reasons why local lenders will be asked to contribute an amount hovering around 5 billion euros in the next couple of months. The first is the departure of foreign investors from Greek T-bills. Sources say that investors from abroad had acquired T-bills adding up to 3-3.5 billion euros in previous months. However they have now made it clear they do not intend to buy anymore, at least not before the political picture in Greece becomes clearer.

The second reason concerns the very likely issue of an extraordinary set of T-bills, amounting to 1.5-2 billion euros to cover the country’s obligations, which in February and March add up to 4 billion euros. The Finance Ministry is ready to proceed to the extraordinary issue estimating that the amount of 1.5-2 billion will suffice to meet the country’s needs in the next couple of months.

Nevertheless the final amount to be sought from banks through T-bills may be higher. That will be determined by the course of tax revenues: If they continue to crumble after the elections as they did in December and have done this month, Athens will likely require 3 billion euros from the T-bills, which would further increase the amount of additional liquidity banks will need to 5.5-6.5 billion euros.

This amount is separate from the amount that Greek banks will have to cover anyway in February and in March in terms of refinancing maturing T-bills. In the next couple of months the scheduled T-bill issues add up to no less than 7 billion euros. And all this in the current context of constant bank withdrawals that are continuing apace as the elections draw nearer.