ECB keeps ELA funding for Greek banks, toughens conditions

ECB decides to continue emergency lending to Greek banks but makes conditions for access tougher

Photo by: Reuters
Photo by: Reuters

Updated Jul 28, 2015

The European Central Bank (ECB) decided on Monday to keep providing emergency lending assistance (ELA) funds to Greek banks but tightened the conditions for using it.

In a statement following its meeting, the ECB said it “decided today to maintain the provision of emergency liquidity assistance to Greek banks at the level decided on 26 June 2015 after discussing a proposal from the Bank of Greece.”

The decision came a day after Greek citizens said “no” to bailout proposal of the country’s international creditors with 61 percent of the vote in a snap referendum following a call from Prime Minister Alexis Tsipras.

The Greek banks are closed since June 29 and because of the imposition of capital controls, the Greek citizens can only withdraw up to 60 euros a day from ATMs.

To make things more difficult for the Greek banks the ECB increased the level of collaterals and assets that the banks need to hold to access ELA.

“The Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA,” the ECB statement said, decreasing the ability of Greek banks to access ELA which would increase their risk of running out of cash with already decreased levels of reserves.

The ECB decision means Greeks banks need to stay closed until a resolution is achieved between Greece and its creditors, and that the banks may actually run out of money in coming days as their liquidity has significantly been dwindled because of the massive amount of cash withdrawals by the citizens.

The eurozone leaders will have an emergency meeting on Tuesday to discuss the Greek debt crisis in light of the referendum results.

On Monday, the International Monetary Fund (IMF) also said it would not provide funding to Greece citing the country’s recent inability to pay its debt to the IMF.

“The managing director explained the fund's inability to disburse under its arrears policy,” an IMF representative said.

Greece become the first developed nation to default on its debt to the IMF when the country failed to make its 1.6 billion euros of debt payment on June 30.

Despite months long negotiations, Greek government led by socialist Syriza party failed to produce a list of structural reforms that would satisfy the country’s so called troika creditors - European Commission, ECB and the IMF - for them to release new bailout funds to enable Greece to pay its debt.

Inability to reach a resolution may open the way for “Grexit” where Greece would have to leave the eurozone, probability of which increased with the result of the Sunday’s referendum.

Credit rating agency Standard & Poor’s (S&P) said on Monday that in light of the “no” vote, it is now more likely that Greece will leave the euro.

TRTWorld and agencies