Endgame nears for Tsipras as bank collateral runs dry
GREEK banks are running short on the collateral they need to stay alive, a crisis that could force Prime Minister Alexis Tsipras’s hand after weeks of brinkmanship with creditors.
As deposits flee the financial system, lenders use collateral parked at the Greek central bank to tap more emergency liquidity every week. In a worst-case scenario, that lifeline will be maxed out within three weeks, pushing banks toward insolvency, some economists say.
“The point where collateral is exhausted is likely to be near,” JPMorgan Chase analysts Malcolm Barr and David Mackie wrote in a note to clients last week.
“Pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June,” they said.
European policymakers were losing patience with Tsipras who said as recently as Thursday that he would not compromise on any of his key demands.
He is planning to force a discussion of Greece at a summit of EU leaders in Latvia that begins on May 21, a day after the European Central Bank’s (ECB) governing council meets in Frankfurt.
Greek shares and bonds fell yesterday, with the benchmark Athens Stock Exchange (ASE) dropping 1.4 percent at 1.28pm. The ASE has fallen 26.3 percent in the past year, making it one of the worst performing primary equity indices tracked.
Bonds
Yields on two-year Greek notes jumped 280 basis points to 23.71 percent, the highest level this month. Greek bonds remain the best-performing sovereign securities over the past month, according to Bloomberg’s world bond indices.
While talks are centring on whether to give Greece more money, the ECB could decide to raise the stakes as soon as this week if it increases the discount on the collateral Greek banks pledge in exchange for cash under its Emergency Liquidity Assistance (ELA) programme.
Such a move might inadvertently prompt a further outflow of bank deposits and pressure Tsipras to choose between doing a deal and putting his country on the road to capital controls. A Greek government spokesman declined to comment, as did officials at the Greek central bank and the ECB.
“We are in an endgame,” ECB executive board member Yves Mersch said on Saturday. “This situation is not tenable.” The arithmetic goes as follows: Greek lenders have so far needed about € 80 billion (R1 trillion) under the ELA programme.
Banks had enough collateral to stretch that lifeline to about € 95bn under the terms currently allowed by the ECB, a person familiar with the matter said. With the central bank raising the ELA by about € 2bn every week, that could take banks to the end of June.
A crunch would come if the ECB increased the haircut on Greek collateral to levels not seen since last year. That could be prompted by anything from a complete breakdown in talks to a missed debt payment, the official said.