ECB said to raise Greece’s ELA ceiling by most since February
The European Central Bank raised the level of emergency cash available to Greek banks by 2.3 billion euros ($2.6 billion), people familiar with the decision said.
The Governing Council increased the limit on Emergency Liquidity Assistance to 83 billion euros in a telephone conference on Wednesday, the people said, asking not to be named because the discussion was private. That’s the biggest weekly increase since Feb. 18. Governors kept the discounts on the securities pledged as collateral against ELA unchanged, the people said. An ECB spokesman declined to comment.
The ECB is trying to strike a balance between keeping Greek lenders afloat and safeguarding the country’s central bank, which provides the aid, as the government veers toward a debt default. Greek Prime Minister Alexis Tsipras aims to meet German Chancellor Angela Merkel and French President Francois Hollande in Brussels on Wednesday to try to break a deadlock in bailout talks.
ELA “has to be weighed against the risk of overturning the entire Greek financial system,” ECB Executive Board member Yves Mersch said in Frankfurt on Monday. “The risk of saying no would be to plunge a whole financial system into chaos.”
The emergency aid is intended to replace deposit outflows from Greek banks amid uncertainty over the country’s future. International talks this week failed to make progress after Greece submitted a budget-deficit plan that creditors considered unfit for purpose, according to two officials directly involved in the process.
Accident Risk
Merkel is willing to sit down with the Greek leader if he requests a meeting, government spokeswoman Christiane Wirtz told reporters in Berlin.
“With the risk of a default increasing, and possibly leading to an exit ‘by accident’ from the euro zone, deposit outflows are likely to continue,” Barclays Plc economists Philippe Gudin and Antonio Garcia Pascual said in a client note. “If there is no sufficient progress in the coming weeks and should creditors not officially extend the program ending in June, then we believe in all likelihood the Eurosystem would not be able to continue funding Greek banks under the same terms.”
The total level of available ELA has risen by more than 23 billion euros since February, when the ECB locked Greek banks out of regular refinancing operations. The Governing Council reviews the amount weekly and can restrict the funding. It also has the power to insist on higher discounts on the collateral banks post to receive the cash.
“We look each week at these issues of bank solvency and collateral quality and as long as these are in place I don’t think there is a basis for taking a different decision,” ECB Governing Council member Ardo Hansson told reporters in Tallinn on Wednesday. “If things change — the quality of the collateral, for instance, or the outlook for Greek govt debt sustainability — then you factor those in and reassess.”
[Bloomberg]
