Greek pressure mounts as ECB shows caution on emergency cash

Pressure mounted on Greece as U.S. and European officials called on the government to reach a deal with its creditors and the European Central Bank granted the nation’s cash-strapped banks only a small increase in emergency funds.

Prime Minister Alexis Tsipras’s administration will submit a request to the euro area for a six-month loan extension on Thursday, a day later than originally planned, according to a government official. ECB policy makers on Wednesday raised the limit on Emergency Liquidity Assistance for Greek banks to 68.3 billion euros ($77.9 billion) from 65 billion euros, a euro-area central-bank official said. Both officials asked not to be identified because the matters are private.

Greece has been at odds with other euro-area governments over the formula needed to extend the country’s 240 billion-euro rescue beyond its expiry at the end of February. The country risks being left without a financial backstop and on course to default on some of its liabilities as early as next month if it doesn’t reach a creditor accord.

Documents outlining the government’s stance during two closed-door meetings with euro-area finance ministers and representatives of the so-called troika of the European Commission, the International Monetary Fund and the ECB, showed Athens is still seeking to radically alter the terms of the bailout memorandum.


“The words ‘memorandum’ and ‘troika’ are anathema to the Greek government,” said Theodore Couloumbis, a professor of international relations at the University of Athens. “For the other side, fulfillment of existing contractual commitments is an article of faith,” he said by e-mail.

U.S. Treasury Secretary Jacob J. Lew warned in a call with Greek Finance Minister Yanis Varoufakis Wednesday that failure to strike a compromise would bring immediate hardship to Europe’s most-indebted state. French Finance Minister Michel Sapin said that without an accord “we will enter uncharted waters, where there are great risks for the Greeks, first and foremost.”

The lenders want Varoufakis to request an extension to the current bailout deal, which is tied to economic reforms and fiscal prudence in return for aid. Tsipras is seeking an intermediate agreement, followed by a new accord that would allow his government to disassociate from budgetary measures blamed for the country’s economic slump. Senior euro-area finance ministry officials are scheduled to assess the Greek extension request letter on Thursday.

‘Linguistic Cosmetics’

As the two sides struggle to find the language for a compromise “they will have to employ the latest in the art of linguistic cosmetics,” according to Couloumbis, who expects a deal may be reached by the end of the month.

Varoufakis told his counterparts on Feb. 16 that Greece wants to maintain a budget surplus before interest payments equal to 1.5 percent of gross domestic product, less than half the target set in the country’s bailout program, according to the transcripts of presentations. He also said Greece wants to scale down the privatization program and opposes labor market reforms envisaged in the bailout.

Jeroen Dijsselbloem, head of the Eurogroup of euro-area finance ministers, gave Varoufakis until Friday to agree to the terms on offer from the currency bloc. Varoufakis said he believes finance ministers will approve a Greek proposal by teleconference on that day, Athens News agency reported on Wednesday.

ECB Signal

The ECB’s decision at its Governing Council meeting to increase the ELA ceiling by just 3.3 billion euros sends a signal that a political deal is needed to halt deposit outflows at Greek banks, the euro-area central-bank official said. It is intended to cover the temporary liquidity needs of Greek lenders, and not to provide cash that can be used to finance the government through purchases of treasury bills, the official said.

While ELA is provided by national central banks at their own risk, the ECB can set limits or curtail it completely. The cash is supposed to be for solvent financial institutions facing temporary liquidity problems.

Uncertainty over the outcome of Greece’s dispute with euro area member states has triggered deposit withdrawals of about 20 billion euros from Greek banks since December. A spokesman for the Greek central bank declined to comment on the change in ELA. The Bank of Greece had asked for additional ELA of 10 billion euros, Kathimerini reported, without citing anyone. The ECB rejected a Greek request to auction 5 billion euros in additional t-bills, the newspaper said.

Capital Controls

A European official said that failure to strike a deal would bring capital controls closer, as deposit withdrawals will accelerate. The official declined to be named, as the decision to impose capital controls would be taken by the government in Athens, not its creditors.

Greek government bonds dropped for the third time in four this week. The three-year yield rose 55 basis points, or 0.55 percentage point, to 17.63 percent as of 10:36 a.m. in Athens. That’s still down from 21.1 percent last week, the highest since the debt started trading again last year, and a record 128 percent in March 2012. The euro rose 0.4 percent to $1.1443.

Greek stocks rose, with the benchmark Athens Stock Exchange gaining 0.2 percent. An index of Greece debt known as the Bloomberg Greece Sovereign Bond Index shows confidence remains well above the worst levels of pessimism during the past five years.

“Despite hardline stances on both sides, we expect the negotiations will result in a deal, as it is in no one’s interest for Greece to exit the euro,” Roubini Global Economics analysts, including Brunello Rosa and Ariel Rajnerman wrote in a note to clients.

German Finance Minister Wolfgang Schaeuble signaled the Greek request may not be enough. Germany is the biggest contributor to aid. “It’s not about an extension of the loan program, it’s about whether this program is fulfilled, yes or no,” Schaeuble told German broadcaster ZDF late Tuesday. German Chancellor Angela Merkel said on Wednesday that “solidarity is no one-way street.”