ECB of­fers no in­crease in Greek emer­gency funds

The China Post - - FRONT PAGE -

The ECB’s Emer­gency Liq­uid­ity As­sis­tance pro­gram, which was orig­i­nally in­tended as a life­line for sol­vent lenders that get into a cash jam, has be­come a tool to keep the en­tire Greek econ­omy alive while bailout ne­go­ti­a­tions con­tin­ued.

With bailout talks hav­ing failed and Greece likely to de­fault on an IMF pay­ment, the Euro­pean Cen­tral Bank on Sun­day de­cided to keep the level of its emer­gency cash sup­port for Greek banks un­changed.

If the ECB had shut down the pro­gram it would have pro­pelled Grece to­wards a col­lapse of its fi­nan­cial sys­tem, but the ab­sence of fresh cash amid a bank run still means there is still pres­sure on the gov­ern­ment to im­pose cap­i­tal con­trols.

Here is a quick look at ECB’s the Emer­gency Liq­uid­ity As­sis­tance ( ELA) pro­gram:

Nor­mally, the ECB pro­vides eu­ro­zone banks with liq­uid­ity on a day- to- day ba­sis via its reg­u­lar re­fi­nanc­ing oper­a­tions.

Banks re­ceive cash in the form of very low in­ter­est loans in re­turn for “col­lat­eral” — high- qual­ity as­sets, prefer­ably sov­er­eign bonds, placed at the cen­tral bank as guar­an­tee.

But given the des­per­ate state of Greece’s fi­nances, its sov­er­eign bonds have been clas­si­fied as “junk” for some years now, they are not nor­mally el­i­gi­ble as to be used col­lat­eral.

To get around this prob­lem, the ECB granted Greek banks a spe­cial waiver, al­low­ing them to use Greek sov­er­eign bonds as col­lat­eral, as long as Athens kept to the terms of its in­terna- tional bailout pro­gram.

But just af­ter the new far­left gov­ern­ment un­der Alexis Tsipras was elected at the end of Jan­uary, the ECB de­cided to sus­pend that waiver start­ing from Fe­bru­ary un­til Athens could thrash out an agree­ment with its in­ter­na­tional cred­i­tors on the last in­stal­ment of its bailout pro­gram.

Pro­gram for ‘ ex­cep­tional


That left Greek banks solely de­pen­dent on the eu­ro­zone’s spe­cial ELA pro­gram for fi­nanc­ing.

The ECB de­fines ELA as sup­port given by eu­ro­zone na­tional cen­tral banks in “ex­cep­tional cir­cum­stances and on a caseby- case ba­sis to tem­po­rar­ily illiq­uid in­sti­tu­tions and mar­kets.”

The loans are made at the dis­cre­tion of the coun­try’s cen­tral bank, but they have to be ap­proved by the ECB.

The ECB says that the na­tional cen­tral banks may pro­vide ELA “against ad­e­quate col­lat­eral” and only to “illiq­uid but sol­vent” credit in­sti­tu­tions.

Any changes to the lim­its of ELA re­quire a two-thirds ma­jor­ity in the ECB’s 25-mem­ber Gov­ern­ing Coun­cil, which also ap­proves max­i­mum ELA amounts for each in­di­vid­ual bank.

In the case of Greece, the loans are made avail­able by the Bank of Greece. The in­ter­est rates on the loans are higher than for the reg­u­lar re­fi­nanc­ing oper­a­tions, mak­ing it more ex­pen­sive for banks to bor­row via the ELA fa­cil­ity.

Ini­tially, the ECB’s gov­ern­ing coun­cil met ev­ery two weeks to de­cide whether to keep the ELA pipeline open for Greece, then ev­ery week.

But in face of the mas­sive with­drawal by Greek cus­tomers in re­cent weeks, the gov­ern­ing coun­cil has been de­cid­ing on a daily ba­sis. Cur­rently, there is a ceil­ing of around 90 bil­lion eu­ros on the fa­cil­ity.

Eye­brows have been raised at the ap­par­ently open- ended na­ture of ELA to Greece.

The head of the Ger­man cen­tral bank, Jens Wei­d­mann, has been openly crit­i­cal, ar­gu­ing that Greek banks were not sol­vent and that the on­go­ing pro­vi­sion of liq­uid­ity was tan­ta­mount to mon­e­tary fi­nanc­ing, or print­ing money to pay off a gov­ern­ment’s debt.

That is be­cause Greek banks are cur­rently the sole source of fi­nanc­ing for the Greek gov­ern­ment.

While ECB chief Mario Draghi has so far al­ways in­sisted that the con­di­tions for ELA were be­ing met, he has sug­gested the pipeline could be shut down im­me­di­ately if they were not.

The ECB could also toughen the con­di­tions for Greek banks to re­ceive fund­ing un­der ELA.


(Left) A man walks past a piece of graf­fiti made by street artist N_Grams that reads “NO” in Ger­man but also “YES, IN” in the Greek lan­guage in Athens on Sun­day, June 28. (Right) A man walks past a wall bear­ing graf­fiti con­cern­ing Greece’s ref­er­en­dum on the latest of­fer of a debt deal by the coun­try’s EU-IMF cred­i­tors in Athens on Sun­day.

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