Cape Times

ECB caps its aid to Greek banks

- Jeff Black and Paul Gordon

THE EUROPEAN Central Bank froze the level of emergency aid available to Greek banks in a move that threatens to cripple the country’s financial system after a flood of ATM withdrawal­s.

The Governing Council agreed yesterday to cap the amount of cash available at the level set in its previous decision on Friday, it said in a statement. One euro-area official, speaking on condition of anonymity, said the ECB viewed the funds as insufficie­nt for lenders’ requiremen­ts and that Greece would need to call a bank holiday before branches open today.

The decision suggests the ECB wants to protect its own balance sheet as Greece veers closer to a financial collapse. With Prime Minister Alexis Tsipras pledging a July 5 for its monetary-policy stance. It said it would use all instrument­s within its mandate to ensure price stability in the euro area, and was “working closely” with the Greek central bank.

Any decision to impose a bank holiday or capital controls would have to be taken by the Greek government or the country’s central bank. A Greek government body that monitors the stability of the country’s financial system was to convene later yesterday, said Panos Sokos, a spokesman for the finance ministry.

Bank run

Two senior Greek bank executives said as many as 500 of the country’s more than 7 000 ATMs had run out of cash as of yesterday morning, and some lenders might not be able to open today unless there was an emergency liquidity injection from the Bank of Greece.

The ECB has been reviewing Emergency Liquidity Assistance (ELA) daily as June 30 approaches, when Greece’s bailout programme expires and repayments to the Internatio­nal Monetary Fund fall due.

The ECB took Greek banks off standard refinancin­g operations in February after the newly elected government said it opposed the terms of the country’s bailout package. Instead, lenders had to rely on the Greek central bank for funds to offset deposit outflows.

The ECB Governing Council has the right to object to ELA and can curb it with a twothirds majority. So far, it has determined that Greek banks meet the conditions that they be solvent and have adequate collateral. While the cash has helped keep Greek banks alive, the ECB needs to protect itself should the government default on its debt. – Bloomberg

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