What the ECB's Move on Greek Government Debt Is Really All About
Draghi had his own contribution to make to the Greek deal on Friday
So says the El Pais newspaper,citing unnamed sources, and reported by Bloomberg this morning
It appears that ECB president Draghi helped the negotiations on Friday when certain delegations were seeking to block a deal until Tuesday
He is reported to have provided data on the state of the Greek financial system and deposit outflows to illustrate what was at stake
Were the Greeks were being a little economical with the truth then ?
ECB raises emergency funding for Greek banks
The European Central Bank on Friday increased the amount that Greek banks can borrow under an emergency lending program, a Greek bank official said, as daily deposit outflows picked up to almost one billion euros, amid uncertainty over the country's bailout program.
The Greek bank official didn't specify how much liquidity will be provided to Greek lenders. Under the ECB's emergency liquidity assistance program, or ELA, the Greek central bank lends money to financial institutions. The loans carry a higher interest rate than standard ECB loans, and the credit risk stays with Greece.
"In a teleconference, the European Central Bank approved the extra ELA funding. There is no problem with the financing of Greek banks," said the bank official. "We expect a positive outcome to Monday's meeting," he added.
Friday's decision by the ECB came after a request by the Greek central bank for additional emergency loans to buffer deposit outflows. On Wednesday, the ECB raised the amount available from the ELA program to EUR84.1 billion euros from EUR83 billion.
"The loans carry a higher interest rate than standard ECB loans, and the credit risk stays with Greece."
Fantastic. ECB using the misery of one country to sell some more fiat money at higher interest rates - and their official statements are that they do not expect Greek banks to open on Monday. Useless that IMF is excluded from negotiations when ECB and IMF are exactly the same
ECB Gives Greek Banks Barely Enough Cash To Cover One Day's Bank Run
Yesterday evening, after what had been a dramatic surge in the Greek bank run which has resulted in over €3 billion in cash withdrawn through Thursday night, the Greek central bank requested an emergency cash dispensation from the ECB under the country's Emergency Liquidity Assistance program, just one day after the ECB granted the latest €1.1 billion expansion in the ELA. Rarlier today, in an unscheduled session, the ECB did as requested, however it granted Greece far less than the amount it sought, and according to MarketNews reports, the ECB gave Greece just €1.8 billion in addition funds.
This means that Greek deposits have declined by over €5 billion in the past 7 days alone, as indicated by the surge in the ELA from €80.7 billion on June 10 to €85.9 billion currently.
Worse, as Reuters reported moments ago, on Friday alone there was another €1.2 billion in deposit outflows which means that the entire ELA increase has already been used up, and Greece is again facing the abyss.
Finally, the one question on everyone's mind, can Greek deposits hit parity with total ELA as we hypothesized a week ago? The answer - no. As the following chart shows, Greece currently has about €95 billion in ELA eligibility and just around €120 BN in deposits left.
Ecb = eu = imf = usa
Draghi Can’t Escape Spotlight as Greek Destiny Lies in ECB Hands
Mario Draghi might not like it, but he now has the fate of Greece in his hands.
With Prime Minister Alexis Tsipras pledging a referendum on a bailout package only after debt payments fall due, and as bank customers line up to pull money out, the European Central Bank president must decide how to react. He and his colleagues face the dilemma of withdrawing support for the Greek financial system and so courting accusations of political meddling, or pouring more cash in and risking the credibility of the euro.
The ECB’s power over Greece lies in the emergency aid it has fed to keep the nation’s banks alive through five months of failed political talks on unlocking bailout funds. Should it halt that, lenders would quickly run out of cash, forcing Greece to consider capital controls and succumb to creditors’ demands or potentially put it on a path to exiting the single currency.
“The ECB had continued supporting the Greek banking system over the past few months of deposit flight because of the hope that an agreement would be reached, and the assumption that the Greek government will not default on payments,” said Christian Keller and Ajay Rajadhyaksha, analysts at Barclays Plc. “It is unclear if the first argument still holds, and the second clearly doesn’t.”
Emergency Liquidity
As euro-area finance ministers meet in Brussels this weekend to discuss the latest turn of events in Greece, the Frankfurt-based ECB’s Governing Council is planning a telephone conference, according to a person familiar with the matter, who asked not to be identified as the council meetings are private. Draghi was also scheduled to meet in Brussels with Greek Deputy Prime Minister Yannis Dragasakis and Deputy Foreign Minister Euclid Tsakalotos. An ECB spokesman declined to comment.
The ECB has repeatedly increased the cap on Emergency Liquidity Assistance that the Greek central bank provides to offset deposit outflows, and which stood at almost 89 billion euros ($99 billion) as of Friday. That’s up from less than 60 billion euros in February, when the ECB cut Greek banks off from normal refinancing because of the newly elected government’s opposition to reforms linked to the country’s bailout.
The effect has been to buy time for Greece to reach a deal with euro-area countries and the International Monetary Fund, as well as the ECB, on a way to unlock bailout funds so it can pay its debts.
Bank Solvency
The program expires and IMF payments are due on June 30. Tsipras plans a referendum on July 5 on the institution’s proposal and asked for an extension to the program to cover that date. Euro-area finance ministers rejected the request, according to European Union official. They will continue meeting without Greece, an official said.
While any decision to rein in ELA requires a two-thirds majority in the 25-member Governing Council, that may not be hard to achieve if Draghi backs it. He would already have weighty support from Germany’s Jens Weidmann. The Bundesbank president said on Thursday that ELA for Greece raises “serious” concerns over monetary financing of governments, which is illegal under EU law, as Greek banks regularly roll over about 9 billion euros of short-term government debt.
To receive emergency liquidity, banks must meet two conditions -- they must be solvent and they must have sufficient collateral. That gives the ECB some latitude over its actions, since it can influence both conditions. For a while at least, it could maintain that the Greek banks are solvent even after the government misses a debt payment and the bailout package expires.
ECB Says "Greek Bank Holiday Now Necessary"
Earlier this morning we noted that the ECB has now frozen the ELA cap for Greek banks in the wake of PM Alexis Tsipras' move to call for a euro referendum and the Greek parliament's vote to allow the poll to go ahead.
With €1 billion or more having already been withdrawn this weekend, the Greek banking sector faces an acute liquidity crisis and without access to more ELA, the game is over and capital controls are likely a foregone conclusion despite Varoufakis' contention that such an outcome is "a contradition of terms" in a monetary union.
The ECB knew this of course when the board of governors decided against raising the cap and indeed, the central bank has now confirmed that without further access to emergency liquidity, Greek banks likely cannot operate going forward and a bank "holiday" may now be necessary.
Via Bloomberg:
- ECB SAID TO SEE EXISTING GREEK ELA INADEQUATE FOR BANKS' NEEDS
- ECB SAID TO VIEW BANK HOLIDAY FOR GREECE AS NECESSARY
What Next in Euro Zone and Beyond after Greek Vote
Finance Minister Yanis Varoufakis and the Bank of Greece, the country's central bank, will hold an emergency meeting with Greek major commercial lenders late on Sunday or early Monday morning after the referendum results will be available.
Greek government is planning a tax amnesty for all Greeks who own Swiss bank accounts, Swiss Neue Zürcher am Sonntag Zeitung wrote on Sunday.
Referring to "well informed circles," the newspaper says that tax evaders will escape prosecution if they pay 21% tax on their undeclared income stashed in Swiss bank accounts.
The paper adds, that Greeks may have between €2 billion to €200 billion hidden in Switzerland.
Greece is desperately short of money. The plebiscite followed a week in which the country failed to pay its dues to the International Monetary Fund (IMF), the international bailout program expired, and banks in Greece were closed due to the lack of liquidity.
Europe pondering next steps
German Chancellor Angela Merkel will travel to Paris on Monday to discuss the situation after the Greek plebiscite with French President Francois Hollande, German government spokesman Steffen Seibert said on Sunday.
“The talks with the French president from 6:30pm, and over dinner will be about a common assessment of the situation after the Greek referendum and the continuation of the close German-French cooperation on this subject,” he announced.
European Central Bank (ECB) policymakers will meet on Monday to discuss the outcome of the Sunday referendum in Greece, a week after putting a cap on emergency funding for Greek banks. Emergency Liquidity Assistence (ELA) for Greek lenders is currently capped at €89 billion.
Benoit Coeure, a member of the ECB’s executive board, who spoke at an economics conference in Aix-en-Provence on Sunday, told the audience: "In the current circumstances of great uncertainty in Europe and the world, the ECB has been clear that if we need to do more we will do more. We will find the necessary instruments. Our will to act in this matter should not be doubted."
British Prime Minister David Cameron is due to meet the Bank of England Governor Mark Carney on Monday to discuss the situation following the Greek plebiscite.
"Whatever Greece decides, Britain is prepared. We have the plans in place whatever the outcome is, " UK Chancellor of Exchequer Osborne told BBC's Andrew Marr show on Sunday morning.
France's economy minister Emmanuel Macron suggested on Sunday that that Greece and its international lenders must find a compromise to pull out the country from its debt crisis, and not count only on support from the ECB.
"Whatever the vote, we must start tomorrow to respond with political discussions to create a framework. It’s not about taking refuge behind the ECB and others that have already done more than enough," Macron said at an economics conference on Sunday.
Expect a flood of lies tomorrow : each Eu politician that wants to save his arse will come up with a fairy tale how Greeks are wrong. This must not stop on Greece. EU is planing slavery - the same as US
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In a press release that jolted the markets, the ECB announced that it will no longer accept Greek government debt as collateral starting next week. But this news is not necessarily a potential liquidity disaster for Greek banks.
The Greek banking system is not particularly reliant on Greek sovereign debt as collateral. Figures from the Bank of Greece show that Greek financial institutions currently have about 21 billion euros of Greek sovereign exposure. Furthermore, this debt has already been subject to valuation haircuts of up to 40% when used as collateral at the ECB.
All collateral that the Greek banks use for ECB operations that is not Greek sovereign debt is still perfectly good to use. This decision of the ECB is against the Greek sovereign, not the Greek banks.
Further, any shortfall in liquidity will be fully made up by Emergency Liquidity Assistance that will be issued by the Greek Central Bank at its own risk.
So, all together, the move from the ECB should have very little immediate effect on the Greek banks - provided there is not a complete loss of confidence in the Greek banking system in the coming days - and should be viewed as what it is: The ECB is pressurizing the Greek government.
The Greek finance minister Varoufakis has been agitating for Greek debt relief since his appointment after January's election. Today the ECB gave its answer to his moves. If the Greek government does not agree to re-enter a program, then the ECB will not allow its debt to be used as collateral.
The immediate effects should be seen as limited within market space, but huge within the political realm.
The ECB has often been accused of placing too much political pressure on governments. Today's moves shows that it has chosen to ignore those accusations once again and do what it feels is right.
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