Emergency cash for Greece doubled as deal elusive ahead of talks

The European Central Bank almost doubled an increase in emergency funding to Greek banks from last week, suggesting deposit flight is accelerating as bailout talks drag on.

The European Central Bank’s Governing Council raised the cap on Emergency Liquidity Assistance by about 1.5 billion euros ($1.6 billion) to 75.5 billion euros on Wednesday, people familiar with the decision said. ELA is funding provided by national central banks at their own risk, and is extended against lower-quality collateral than the ECB accepts.

“The ceiling increase shows that deposit outflows from Greek lenders continue,” said Andreas Koutras, an analyst at in Touch Capital Markets Ltd. in London. “The question now is when will the collateral against ELA be exhausted — in other words how much time is left?”

Euro-area finance ministers will meet in Riga, Latvia, on April 24 in their latest attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. Stocks and bonds rose today after Finance Minister Yanis Varoufakis saw a “convergence” of views and ECB Executive Board member Benoit Coeure said progress was being made.

‘Tangible Progress’

“In recent days, there has been tangible progress in the quality of the discussions,” Coeure said in an interview with the Athens-based Kathimerini newspaper. “Significant differences on substance remain.”

The Athens Stock Exchange rose about 2 percent at the close on Wednesday, led higher by 13 percent jump in the FTSE/Athex Banks Index. Greek bonds also rose, pushing the three-year yield down 196 basis points, or 1.96 percentage point, to 27.62 percent.

Earlier this week, Prime Minister Alexis Tsipras ordered local governments to move their funds to the central bank. The move will help him to make end-of-month salary and pension payments, though it will also further drain commercial banks of their deposits.

“If it can’t go on like this, it won’t,” said Holger Schmieding, chief economist at Berenberg Bank in London, who sees a 30 percent chance Greece will default and exit the euro. Tsipras should “make the right choice -– and better do it fast,” he said.

Greek lenders have a buffer of 2.9 billion euros in cash after the increase in ELA, one of the people said. Weekly ELA injections are intended to match deposit outflows, and liquidity buffers are kept at about 3 billion euros to give the Bank of Greece and the ECB time to react in an emergency.

An ECB spokesman declined to comment.

Collateral Rules

Euro-area finance ministry officials expressed doubts during a Wednesday call about whether Greece’s incremental progress would be enough to unlock emergency loans, according to two people familiar with the matter. One of the people said Greece’s refusal to privatize state assets, reform its pension system and deregulate the labor market were the main stumbling blocs.

The persons asked not to be named because the content of Euro Working Group discussions aren’t public.

The ECB is studying measures to rein in ELA funding to reduce the risks should political talks falter, according to people with knowledge of the matter. Staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece. Adjustments to the so-called haircuts haven’t yet been formally discussed by the Governing Council.

Varoufakis told reporters late on Tuesday that the Latvian meeting is probably too soon to seal an agreement. The best chance for success is an accord that leaves all parties somewhat unsatisfied, as a failure would be “catastrophic,” he said in Athens.

The anti-austerity coalition government has repeatedly expressed confidence that a deal to unlock bailout payments was imminent, only to be refuted by euro-area officials seeking concrete steps.


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