ECB taps to fund banks in Greece wide open

Turning point in debt crisis

THE EUROPEAN Central Bank (ECB) granted more emergency liquidity assistance for Greek banks after the country’s parliament had agreed to reform measures and euro area nations had approved short-term funding, Mario Draghi said.

“Things have changed now,” the ECB president said in Frankfurt yesterday.

“We had a series of news with the approval of the bridge financing package, with the various votes in various parliaments, to begin with in the Greek parliament, which have now restored the conditions for a raise in ELA (Emergency Liquidity Assistance).”

Reopen

The ECB step marks a turning point in Greece’s most recent debt crisis, potentially paving the way for the nation’s shuttered banks to reopen after more than two weeks of closure and capital controls.

Greece’s parliament debated for more than four hours into early yesterday morning to approve the austerity measures that are a precondition for talks on an aid package of as much as 86 billion (R1 trillion).

“We always acted on the assumption that Greece will remain a member of the euro area,” Draghi said. “There was never a question.”

The ECB “substantially accommodated” the Bank of Greece’s request for funding, raising the limit by 900 mil- lion, Draghi said. The amount requested was accommodated in full, though “scaled to one week”, he said.

The ECB acted after euro area finance ministers agreed in principle to extend a 7bn bridge loan.

The ECB granting of more liquidity contrasts with an earlier proposal. Officials had suggested a continuing freeze, people familiar with the matter said.

The risk that Greece would exit the euro area perceived in the financial markets did not derail the region’s economic recovery, the ECB president added. Nevertheless, if risks arise that monetary conditions could worsen, the ECB stands ready to use its arsenal in response.

“If unwarranted tightening or if outlook for price stability were to materially change, the governing council would respond by using all the instruments available within its mandate,” he said. “Economic risks have been contained as a result our monetary policy” measures.

Instead, the region’s economy continued to show signs of growth and even the potential for a pick-up in investment, Draghi said. – Bloomberg