European Central Bank officials will debate tighter rules for the liquidity that Greek lenders rely on for survival, two people familiar with the matter said, a move that underscores the fragility of the country’s financial system.
The Governing Council will discuss Wednesday whether to raise discounts on the collateral Greek banks pledge in exchange for emergency funding, said the people, who are familiar with the agenda and asked not to be identified. Governors will also review how much more Emergency Liquidity Assistance to offer Greek banks.
With access to capital markets shut and deposits flowing out of their vaults, ELA is the last thread keeping Greece’s banks afloat. While economists say the ECB is unlikely to demand higher haircuts without a green light from Europe’s politicians, the debate shows how concerned some central bankers are about Greece’s solvency 100 days after Prime Minister Alexis Tsipras came to power.
Greek bonds plunged Tuesday as Tsipras’s government stepped up its game of brinkmanship with international creditors, blaming them for a failure to end an impasse in the country’s bailout talks.
“Tighter collateral requirements could send a strong message to the Greek government that time is running out,” said Holger Schmieding, chief economist at Berenberg Bank in London. Still, the ECB will not take big political decisions, without the support of European Union governments, according to Schmieding.
Greek bonds resumed their slide Wednesday, with the yield on two-year notes rising 66 basis points to 21.64 percent at 11:06 a.m. in Athens, after climbing 149 basis points on Tuesday. The benchmark stock index slipped 0.4 percent after dropping 3.9 percent on Tuesday, the most in six weeks.
Greece is sending mixed signals about just how much money it has left. While officials say they can make payments to the International Monetary Fund this week and next, one policy maker signaled last month that the country may struggle to keep its finances afloat beyond the end of May.
An interest payment of 200 million euros ($225 million) to the IMF by Greece will be made Wednesday “as normal,” Alternate Finance Minister Dimitris Mardas said in interview with Mega TV. [Bloomberg]