ECB agrees extra emergency funding for Greek banks

The European Central Bank plans to make a decision Thursday on whether to increase the level of so-called emergency liquidity assistance it provides to Greek lenders.

“Several positive things have happened that could justify us to increase the ELA we approved today”.

Draghi repeated that the banks would fully implement the scheme, set to last at least until September 2016, and said the bank had more tools at its disposal if necessary. The Greek social contract felt like it was being violated when banks went “on a holiday” three weeks ago, that is, since the Greek government was forced to impose capital controls to prevent a flood of withdrawals from the banking system.

Those updates included the vote by Greece’s parliament shortly before midnight to accept new austerity measures demanded by creditors as the prerequisite for receiving almost $100 billion in the country’s third bailout in five years. Creditors had made their legislative approval prerequisites to completing the rescue deal.

“I would expect that Mario Draghi will consider now turning on the tap to some extent of emergency liquidity“, Irish Prime Minister Enda Kenny told broadcaster RTE on Thursday morning.

A temporary 7 billion euro ($7.64 billion) loan has already been agreed in principle but technical details will take until Friday to iron out, officials said, indicating that the ECB’s governing council may have to reconvene in a telephone conference.

And eurozone lenders pledged short-term loans so Greece can cover its debts and negotiations for a new three-year bailout worth 85 billion euros ($93 billion). But he said Greece’s situation was “extraordinarily hard”.

He called the Greek vote an important step, but pointed out that many economists doubt Greece’s problems can be solved without reducing the overall value of the debt. Therefore, we do think that Friday does represent another significant date in this Greek debt crisis saga. “One will try to find a solution”. The crucial difference between now and 2012 is that now there is no appetite to do “whatever it takes” to save Greece, which could have large ramifications for the future of the currency bloc as we know it.

Draghi said that Greece is clearly in need of some form of debt relief however the real question is how to do this within the European Union’s legal framework.

However, Draghi said the European Central Bank was relatively certain Greece now would be able to make repayments on the billions of dollars the nation owes the worldwide Monetary Fund and other creditors. It now doesn’t have the money to do so. Without access to funding from private investors or banks outside Greece, the Greek institutions have been running down what little cash they have since then, permitting ATM withdrawals of EUR60 a day.

However, Paul De Grauwe, an expert on the eurozone at the London School of Economics, warned that by strictly limiting the funding available to the banks, the ECB risked exacerbating the run on deposits.

With the worldwide Monetary Fund urging a debt writedown for Greece that Germany says is impossible under euro rules, Draghi stepped in with an attempt to ease tension.

Draghi dismissed as “unjustified and totally unfounded” criticism that the ECB had put too much pressure on Greek banks and triggered panic. Mr. Draghi said members of the European Union are likely to approve that option.

However, the head of eurozone finance ministers, Jeroen Dijsselbloem, shot down talk of a Greek euro exit.