The European Central Bank is working on a plan to provide an immediate boost of liquidity to the local credit system once negotiations between the government and Greece’s creditors are completed and a new bailout agreement is signed.
The plan provides for the European Stability Mechanism (ESM) to issue special collateral for domestic lenders with which the ECB will restore the flow of the basic form of funding to Greek banks by the Eurosystem. This collateral, amounting to 10 billion euros, will be granted via a special account provided that a new bailout agreement is passed.
The ESM collateral will be exclusively reserved for the ECB, which will then be able to replace the costly (for Greek lenders) flow of cash through the emergency liquidity assistance (ELA) mechanism with regular financing. ELA comes at a cost of 1.55 percent, while ECB funding has an interest rate of just 0.05 percent. Therefore, such a move would help banks return to normal and pave the way for the substantial easing of capital controls, credit sector officials estimate.