ECB
set to decide on increasing Greek bank lifeline
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[May 06, 2015]
FRANKFURT (Reuters) - The European
Central Bank's Governing Council on Wednesday may nudge up the amount of
Emergency Liquidity Assistance teetering Greek banks can borrow, as
Athens struggles to avert a potentially catastrophic funding crunch.
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Greece wants the ECB to increase the liquidity lifeline and also
allow its banks to buy more short-term treasury bills, easing a
squeeze that has already led it to commandeer cash reserves from
municipalities and other government bodies.
People with knowledge of ECB deliberations predict the governing
council will agree to a further extension of emergency liquidity,
but many are doubtful it will do much more.
Such an outcome would keep Greece's banking system afloat but do
little more to help the government cover some 950 million euros
($1.07 billion) it must pay the International Monetary Fund by May
12.
On Wednesday, Athens sells 875 million euros of six-month Treasury
bills to refinance a maturing issue and a 200 million euro repayment
to the IMF.
A Greek official familiar with the matter told Reuters that Athens
has now made that IMF payment.
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But cash-strapped Athens is quickly running out of money while it
tries to persuade its euro zone partners and the IMF that it is
implementing enough reforms for them to release the more money under
its bailout agreement.
On May 12 Greece must pay a further 750 million euros to the IMF,
which is expected to be a bigger struggle.
One problem for Greece is the ECB's 3.5 billion euro limit on the
amount of short-term T-bills that Greek banks can offer it in return
for emergency funding.
As these banks are the only major buyers for such government debt,
the cap effectively stops Athens from borrowing more.
But increasing the cap would hit a number of hurdles, not least
legal objections from Germany's Bundesbank, which argues that it
breaks the rule that central banks should not finance governments.
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The ECB's bank supervisors also recently wrote to Greek banks
instructing them not to increase their exposure to government or
state institutions, a person familiar with the matter said.
Euro zone central bank sources say hardliners led by the Bundesbank
want the "haircut" or discount the ECB imposes on Greek securities
offered as collateral for funding to be increased after recent
ratings downgrades of Greece and its banks.
That looks unlikely for the time being, however, as it would only
tighten the squeeze on Athens. The ECB would be reluctant to upset
negotiations with such a move as talks reach their climax.
One euro zone central bank source said he did not expect the council
of euro zone central bankers to make a dramatic change that would
put Greek banks in immediate difficulty while negotiations are
continuing.
($1 = 0.8903 euros)
(Reporting by John O'Donnell and Frank Seibelt in Frankfurt and
George Georgiopoulos in Athens; Writing by Hugh Lawson Editing by
Jeremy GauntA)
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