ECB decisions may prove to be a blessing in disguise

European Central Bank Governor Mario Draghi announced on Thursday a board decision on Greece that may appear tough but in fact averts a default during March at least and gives Athens some time to fulfill the pledges it undertook at the February 20 Eurogroup meeting. However it is still keeping the country on the margins of the main funding mechanisms of member states by the Eurosystem.

The ECB board decided on Thursday in Nicosia to increase the limit of the cash lent to Greek banks through the Bank of Greece’s emergency liquidity assistance (ELA) mechanism by 500 million euros. Draghi made it clear that the ECB is not yet ready to consent to a rise in the ceiling of the funds that banks invest in Greek treasury bills or to accept Greek state bonds as collateral for cash.

“The ECB is the first to wish to restart the financing to the Greek economy provided the conditions are in place, and the conditions are that a process which suggests a successful completion of the review be put in place quickly. That is the condition and we will certainly welcome such a development,” said the bank’s governor.

In the last couple of months, added Draghi, the ECB has doubled lending to Greece to 100 billion euros, which amounts to 68 percent of Greek gross domestic product, by far the highest in the eurozone. “In that sense one might say that the ECB is the central bank of Greece, but is also is the central bank of the other states and it is a rule-based institution; it is not a political institution.”

Therefore the ECB has not exactly opened the liquidity floodgates, but the extra 500 million euros will be added to the 2.5 billion that Greek banks have not yet used from the ELA to create a leeway of 3 billion euros that banks can tap if they need it. This amount can also be utilized by the state as cash from the reserves of social security funds that are deposited at commercial lenders so as to cover its liquidity needs for this month. Had it not been for the unused ELA funds, the state would have been unable to draw on those reserves.

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