ECB to provide new emergency funding to Greek banks

Food vendors fleeing Syntagma Square in Athens on Wednesday during police clashes with protesters angry at the austerity measures that were passed by the Greek Parliament in return for talks on a new aid package from the euro zone.
Food vendors fleeing Syntagma Square in Athens on Wednesday during police clashes with protesters angry at the austerity measures that were passed by the Greek Parliament in return for talks on a new aid package from the euro zone.PHOTO: BLOOMBERG

ATHENS • The European Central Bank (ECB) yesterday raised its emergency funding for Greek banks in a step to help them partially reopen after euro zone governments agreed in principle to grant Athens a new three-year loan.

Greek Prime Minister Alexis Tsipras had earlier won the backing of Parliament for the stringent reform measures demanded by Greece's creditors as a condition for talks on an aid package of up to €86 billion (S$129 billion).

The move was enough to persuade the ECB to reopen a vital funding flow for the Greek banking system under its Emergency Liquidity Assistance (ELA) programme after euro zone finance ministers signalled they would unlock €7 billion in bridging loans.

"Things have changed now," ECB president Mario Draghi told a news conference in Frankfurt.

"We had a series of news with the approval of the bridge financing package, with the votes, various votes in various Parliaments, which have now restored the conditions for a raise in ELA."

Mr Draghi said the ECB's governing council had increased emergency liquidity assistance by €900 million for one week at the request of the Bank of Greece.

The ECB said it was difficult 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 Greece's banks.

The total exposure of the Eurosystem - the ECB and the euro zone's central banks - to Greece has now risen to €130 billion.

The ELA had been held steady since late June, forcing Greece's banks to close and limit cash withdrawals to €60 per day, disrupting an economy already in recession. The Greek economy has shrunk by a quarter since the start of the country's troubles.

Still, a limited bank opening will create an impression of normality and allow the Greek central bank to release cash that one official said was now being held in its vaults for an emergency.

Before agreeing to raise the funding, the ECB needed to ensure that Greece would have the temporary financing to make a €3.5 billion payment, plus interest, due to the bank on Monday. European finance ministers held a conference call yesterday to agree on a plan for the bridging funds to meet Greece's immediate debt servicing needs and to avoid a default to the ECB.

In a statement, the ministers said they had agreed in principle to start talks with Greece on a new three-year bailout, and also called on Athens to adopt a second set of reforms by next Wednesday.

All 28 EU countries are expected to contribute despite the reluctance of non-euro members such as Britain and the Czech Republic, after a compromise was reached to use euro zone funds to guarantee their ring-fenced contributions.

Technical details for the bridging loan will take until today to iron out, euro zone officials said.

European shares climbed to a six-week high yesterday after the Greek Parliament passed the austerity measures.

The region's stock markets also hit session highs after the ECB pressed ahead with its economic stimulus programme.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on July 17, 2015, with the headline 'ECB to provide new emergency funding to Greek banks'. Print Edition | Subscribe