ECB’s Praet says ELA is only for short-term needs

LISBON – Emergency liquidity assistance (ELA) is only for short-term needs and it is essential that it is a “bridge to somewhere,” European Central Bank policymaker Peter Praet said, adding to uncertainty over whether Greece will be able to use ELA.

The ECB said last week it would no longer accept Greek government bonds as collateral for funding for commercial banks, shifting the burden onto the Greek central bank to finance its lenders through ELA. However, the ECB Governing Council can restrict such funding if a two-thirds majority agrees.

Greece’s new left wing government is hoping to obtain a bridge loan until June from European creditors but has met opposition in its effort to roll back austerity and undo some reforms under its bailout.

“The ELA is only for very short needs,” Praet told a conference in Lisbon on Tuesday. He added that it is essential that ELA is “not a bridge to nowhere, that it is a bridge to somewhere. It is essential that we preserve that.”

Praet did not specifically mention Greece, but said: “Liquidity provision to institutions, banks – we know this is a discussion in some countries … The ECB could only do it when there are credible perspectives.”

Some observers hope a meeting of eurozone finance ministers on Wednesday could be a first step to finding agreement to ease the standoff between Athens and its creditors.

Talking about the ECB’s plan to launch quantitative easing next month by purchasing government bonds, Praet said: “We had to face several episodes of spikes and fear of deflation.”

“We have to be protected about deflation in the next five years.”