ECB to review Greek bank liquidity after March deposit drop

European Central Bank policy makers will consider extending their lifeline to Greek banks on Wednesday after the country’s lenders lost deposits for a sixth month.

The ECB’s Governing Council is holding its weekly review of their Emergency Liquidity Assistance, the funds keeping Greece afloat, according to two people familiar with the matter who asked not to be named because the talks are private. Net withdrawals slowed to 3 billion euros ($3.2 billion) in March, bringing outflows since October to almost 28 billion euros, according to two other officials.

“Greece is being kept on an incredibly tight leash,” Michala Marcussen, global head of economics at Societe Generale SA, said in a Bloomberg Television interview. It’s “clearly intended to keep Greece under pressure and keep things moving forward in the negotiations.”

With Greece running out of cash, ECB loans are preventing a financial collapse. Prime Minister Alexis Tsipras is trying to persuade his euro-area creditors to release aid even as he resists demands for more austerity.

The ECB council made more than 1 billion euros of additional ELA available last week, raising the limit to just over 71 billion euros. Dependence on the emergency cash has surged since the ECB in February stopped allowing Greek government bonds to be used as collateral for its regular funding operations and deposits plunged to their lowest in more than 10 years.

Tsipras, who this week complained the ECB is treating his government unfairly, has lobbied the central bank’s regulatory arm unsuccessfully to be allowed to sell more short-term debt to the country’s banks. The proceeds would ease the cash crunch stemming from the deposit flight. The ECB warned Greek lenders on Tuesday against increasing their sovereign exposure.

Greek bonds have delivered the worst returns this year of all 34 sovereign securities tracked by Bloomberg’s World Bond Indexes. Greek bank shares lost 41.5 percent of their value in the first quarter of 2015, which ended on Tuesday.

The yield on Greek July 2017 note fell 15 basis points to 22.47 percent at 11:47 a.m. in Athens on Wednesday. The benchmark stock index rose 0.4 percent.

Liquidity warning

The country’s banks should invest “in assets that can be used as collateral to make sure that they can get the liquidity they need,” Single Supervisory Mechanism Chair Daniele Nouy told European Parliament lawmakers in Brussels on Tuesday.

The capital flight exacerbates an already challenging growth picture for Greece, which is significantly deteriorating as aid talks drag on, and increases risk the country might leave the euro area, strategists at Goldman Sachs Group Inc. including Robin Brooks wrote in a client note.

Euro-area finance ministry deputies will hold a teleconference Wednesday to discuss Greece’s proposals for meeting the conditions to release more aid, according to a European official.

European Union President Donald Tusk said he doesn’t expect Greece to receive any aid before the Easter break, but that a deal will probably be struck by the end of April.

“We are not there yet,” European Commission spokeswoman Mina Andreeva said on Tuesday. The deputy group’s call will “allow it to take stock and also allow us to proceed in the best way,” she added. [Bloomberg]

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