German Central Bank Protests ECB Lifeline Increase for Greece

The European Central Bank held a crucial cash lifeline for Greece unchanged on Thursday, a person familiar with the discussion said, as the head of the Bundesbank objected to the way Greek banks are being funded.

ECB policy-setters held the limit on their emergency funding for the banks steady for the second day running, a source familiar with their talks said, having previously increased it steadily over many weeks.

Greece’s central bank may not have asked for an increase, though the country’s lenders have seen their reserves dwindle daily as savers spooked by the prospect of default continue to withdraw cash.

It is not clear how much longer they can cope without further hikes in such funding back-up, raising pressure on the government in Athens as time runs out for it to agree a cash-for-reforms deal with its creditors to avert a default.

Bankers in Greece have said outflows have eased in the last days in anticipation of a deal, with some savers who pre-ordered withdrawals last Friday not pulling out the full amounts on Monday as sentiment improved.

Provided the ECB raises the funding ceiling when needed, banks still have eligible collateral to tap emergency liquidity from the Bank of Greece. In mid-May they had about 40 billion euros of such collateral to draw funds from the credit line.

via Reuters

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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