ECB Could Increase ELA Funds to Avoid Greek Bank Insolvency

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.

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.

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.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza