ECB member says no more money without a deal

The ECB is now keeping Greek banks – and by extension the Greek economy – afloat via its Emergency Liquidity Assistance, or ELA, facility.

Greece’s Prime Minister Alexis Tsipras leaves from Maximos Mansion to meet the Greek President Prokopis Pavlopoulos in Athens, Wednesday, July 8, 2015.

Tsipras yesterday must persuade Europe’s other 18 leaders, many of who are exasperated after five years of the Greek crisis, to open rapid negotiations for a major new loan to rescue his country. The creditors will review the measures before European leaders convene Sunday to decide on Greece’s fate.

The European Central Bank (ECB) has tightened the liquidity conditions for the banks in Greece post the recent referendum vote and also warned of cutting off liquidity to the country entirely if it misses the 20 July deadline for paying back an amount of around €3.5bn ($3.9bn).

Weidmann said he welcomed the fact that the ELA was “no longer being used to finance capital flight caused by the Greek government”.

ECB said in a statement: “The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in Emergency Liquidity Assistance relies to a significant extent on government-linked assets”.

The problem was that it was hard to tell the difference between “illiquidity and insolvency”, Weidmann said.

The Greek people rejected a tough new bailout deal on Sunday, with 61% snubbing demands for further austerity measures.

Moscovici said, “I have the sense that the dialogue is established, or restored, and that there is a way out”.

Without a firm political commitment from the euro area for a quick agreement with Greece, it’s “highly improbable” that the ECB will agree to any increase in ELA, predicted Jacob Funk Kirkegaard, a senior research fellow at the Peterson Institute for worldwide Economics in Washington, D.C. “Without such assistance, Greek banks will remain closed and slide ever closer to bankruptcy”, he noted on Monday.

Creditors had wanted more spending cuts in exchange for extending the country’s multibillion euro bailout deal until November.

The move in the common currency comes after a week of fairly steady trade for the euro, even as debt talks between Greece and its global creditors appeared to be unravelling. Moscovici said that is not now under discussion.