Mario Draghi can’t afford to play by the same crisis rules as the European Central Bank did in the past.
With Ireland in 2010 and Cyprus in 2013, a threat to withhold aid for lenders forced each country to agree to international bailouts. This time, Greece’s appetite for brinkmanship has so far left the ECB president dependent on Europe’s politicians to deliver the ultimatums, while policy makers have reluctantly kept Greek banks afloat.
Through weekly, and now almost daily, doses of liquidity, ECB support for those institutions has given Greece’s government room to negotiate a bailout with creditors until the eleventh hour without imposing capital controls. That’s riled sticklers for rules on the ECB Governing Council, but such pliancy is a price Draghi may have paid to keep the euro intact.
So-called Emergency Liquidity Assistance for banks has been part of the ECB’s toolkit since its foundation. It was intended to allow authorities to tide over solvent lenders who could neither raise funding in markets nor had collateral for regular ECB tenders. The measure was never meant to save whole countries.
That’s what it’s now doing. While Greece didn’t ask for an increase in assistance on Wednesday, according to a person familiar with the matter, it has needed fresh approval for a higher ELA limit four times in the past week. An ECB spokesman declined to comment on Greece’s ELA requests.
Via the Greek central bank, the ECB is replacing money withdrawn by depositors fearful that the government can’t agree a deal with its creditors, allowing lenders to rack up an overdraft of almost 90 billion euros ($101 billion) since February.
ELA cash loaned against state-guaranteed bank bonds and government debt at its 2012 peak amounted to almost 63 percent of Greek GDP, far more than the equivalent measure in Ireland or Cyprus. Now, Draghi says total liquidity support to Greece amounts to 118 billion euros, or about 66 percent of GDP, the highest level of any country in the euro.