The European Central Bank sent another warning signal to Greece on Thursday by granting a small increase in the cash available to local lenders via the emergency liquidity assistance (ELA), which only just covers the current needs of the country’s credit system.
The ECB approved the Bank of Greece’s request for a 5.5-billion-euro increase in the ELA ceiling to address the tight liquidity conditions during an extraordinary teleconference. The limit has been raised from 59.5 to 65 billion euros.
ECB council member Peter Praet reiterated that the rules must be adhered to, saying that ELA is only supplied to solvent credit institutions. Sources say the ECB officials do not dispute the solvency of Greek banks, but stress the solvency of the lenders ultimately depends on that of the state.
Frankfurt’s decision shows its intention to place stricter controls on the supply of cash to Greek banks in the wake of Wednesday’s inconclusive Eurogroup meeting. “The more time that passes without an agreement with the eurozone, the more the ECB will restrict the limits by supplying liquidity that only covers a few days’ needs, and as the February 28 deadline approaches [when the bailout extension expires], the risk of an ‘accident’ will grow,” a bank official noted.
The ECB council is to convene again on Wednesday to examine another increase to the Greek limit, although everything depends on the outcome of Monday’s Eurogroup meeting.
Senior bank officials have told Kathimerini that almost all the liquidity available to Greece (59.5 billion euros) has been absorbed and that banks’ total dependence on the Eurosystem amounts to 90 billion. The rapid deterioration in liquidity conditions has been attributed to the uncertainty that arose when the snap general elections were called as well as the new government’s inability to reach a swift agreement with the country’s creditors. Following the 4-billion-euro outflow in December and 12 billion in January, bank deposits have already shrunk by another 3 billion this month.