ECB: Cash support has its limits

Top European bankers warned on Monday of the risk that Greek banks may not be able to obtain further liquidity due to lack of collateral, piling more pressure on Athens to reach a compromise with its creditors.

French central banker Christian Noyer, a member of the European Central Bank governing council, on Monday echoed the words of ECB Governor Mario Draghi last week, saying the supply of cash to Greek banks is in the hands of the Greek government, which analysts see as a warning that there are limits to the supply of cash. Noyer added that a deal between Athens and its creditors is necessary to restore trust between the two sides and in the market.

“At some point, Greek banks are likely to be unable to offer enough collateral to access refinancing even for emergency liquidity. It is therefore urgent that Greece put an end to the current situation and that Athens should establish a program with the International Monetary Fund and the backing of other eurozone countries in order to re-establish confidence,” Noyer said in a newspaper interview.

He also argued that a Greek exit from the eurozone would create “a trauma” for the bloc whose impact would be particularly felt in the global economy.

ECB Vice President Vitor Constancio told the European Parliament on Monday that “we at the ECB are convinced that there will be no exit of Greece from the euro,” noting that the European Union would not allow it. He added that in case of a Greek default there should not be any direct consequences on local banks, “provided the banks remain solvent and have the collateral that can be accepted for the supply of liquidity.”

He also said that Frankfurt considers Greek lenders solvent, but added that he could not promise the ECB would fund Greece “whatever the situation and the amount and the conditions.” On the possibility of capital controls in the banking system, he said this could only be done if the Greek government asked for it and stressed that as in Cyprus two years ago, imposing capital controls does not entail a eurozone exit.

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