ECB raises Greek bank funding as Eurozone backs bridge loan
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The European Central Bank raised its emergency funding for Greek banks slightly on Thursday as finance ministers agreed to tap an EU-wide fund to keep Greece’s finances afloat until a bailout is approved.
ECB President Mario Draghi said the bank's governing council had increased emergency liquidity assistance (ELA) by 900 million euros for one week at the request of the Bank of Greece.
"Liquidity provision according to our rules was never meant to be unlimited and unconditional," he told a news conference, saying the Eurosystem of central banks' total exposure to Greece had risen to 130 billion euros ($141.32 billion).
Draghi said it was hard to predict when capital controls imposed on June 29 after the breakdown of bailout negotiations could be lifted, but it was important to avoid a run on the banks.
Experts say Greek banks are likely to open only with reduced operations and cash withdrawal limits until a bailout package is passed and banks receive at least some of the 25 billion euros earmarked for recapitalisation.
Rebutting criticism in Greece that the ECB had starved Greeks of cash, Draghi noted that the biggest deposit flight had coincided with political events such as the January election and the collapse of bailout talks in June.
"So I find these observations that there wasn't enough liquidity assistance or that there was a bank run caused by the ECB quite unwarranted, certainly unfounded," he added.
Draghi said the ECB had always acted on the assumption that Greece would remain a member of the 19-nation currency area, but that depended entirely on the Greek authorities and other member states, not on the central bank.
Earlier, the ECB held interest rates steady and Draghi said the central bank would fully implement its quantitative easing government bond-buying programme up to September 2016 to support a broadening economic recovery and help the euro area return to its inflation target of just below 2 percent.
He promised more action if needed.
Bridge loan backed
Before agreeing to raise ELA, the bank needed to ensure that Greece will have the temporary financing to repay a 3.5 billion euro plus interest payment due to the ECB on Monday.
Draghi said all evidence indicated that Greece would make that July 20 payment and clear its arrears to the International Monetary Fund.
Shortly after Draghi’s news conference, EU Commission President Jean-Claude Juncker said the European Union had agreed on a short-term loan to Greece until mid-August.
Juncker said EU finance ministers had hammered out the deal that will help Greece meet its immediate financial needs and debt obligations.
The deal involves the EU's emergency funding program, the EFSM, which is backed by all 28 members of the EU.
Juncker didn't specify how much Greece would receive.
Earlier eurozone officials said finance ministers had agreed in principle to a temporary 7 billion euro loan, but that technical details would take until Friday to iron out.
Nearly a third of economists polled by Reuters still expect Greece to eventually leave the euro after an IMF report said Athens needs far more debt relief than European governments have been willing to contemplate.
Though Germany ruled out a "haircut" to this debt mountain within the eurozone, it said extending maturities was an option and the European Commission suggested "very substantial re-profiling".
The IMF said Greece may need a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension.
(FRANCE 24 with REUTERS)