Greek banks find themselves on a knife edge and are hoping for a swift deal between the government and its creditors, as the European Central Bank has slowed the liquidity tap to a drip, increasing the pressure on Athens to come to an agreement with the eurozone and the International Monetary Fund.
On Thursday, for the second day in a row, Frankfurt did not increase the limit of the emergency liquidity assistance (ELA) provided to Greek banks as, according to banking sources, the Bank of Greece did not submit such a request.
The same sources said there was no need for any additional liquidity thanks to the stabilization of deposits at Greek banks in previous days. However, foreign news outlets reported that the ECB did not increase the ELA limit due to reactions within its governing council.
The head of the German central bank, Jens Weidmann, also a member of the ECB council, voiced strong criticism about the growing dependence of local lenders on the Eurosystem’s cash flow, saying that it constitutes a serious violation of the regulations on state funding. He stressed that the political choices of the Greek government have accelerated the outflow of deposits, warning that the ECB should not constitute a lender of last resort for governments. The Bundesbank chief also noted that Greek lenders have no access to markets, receive cash through the ELA and purchase state debt (treasury bills), which is not permitted.
Weidmann’s remarks were interpreted as an increase in the pressure on Frankfurt for the further toughening of its stance toward Greece. Bank officials said that what has been happening over the last few days is unprecedented, as the ECB is following conditions in the Greek credit market on a day-to-day basis and only approves the necessary liquidity for banks to close their books at the end of each day. “Originally the ELA limit was extended every month, then every week and now almost every day,” a senior bank official noted.