Greek banks said to win more emergency cash as talks loom

23 Apr8:18 AM

[ATHENS] Greece won access to more emergency funding for its banks as euro-area governments prepared for another round of talks on the country's financial crisis.

The European Central Bank's Governing Council raised the cap on Emergency Liquidity Assistance by about 1.5 billion euros (US$1.6 billion) to 75.5 billion euros in a teleconference on Wednesday, people familiar with the decision said, asking not to be named as the call was private. An ECB spokesman declined to comment.

Euro-area finance ministers will meet in Riga on April 24 in their latest attempt to persuade Greece to commit to economic reforms so that aid payments can be released before the country runs out of money. As deposit outflows mount amid the uncertainty, the ECB is supporting the nation's lenders by allowing the Greek central bank to replenish the cash - though policy makers have said that can't continue indefinitely.

"If it can't go on like this, it won't," said Holger Schmieding, chief economist at Berenberg Bank in London, who sees a 30 per cent chance Greece will default and exit the euro. Greek Prime Minister Alex Tsipras should "make the right choice - and better do it fast," he said.

German newspaper Handelsblatt reported the increase in ELA earlier. Greek bank shares rose as much as 12 per cent, after dropping to record lows on Tuesday. The FTSE/Athex Banks Index was up 11 per cent at 3:43 pm in Athens.

Greek lenders have a buffer of 2.9 billion euros in cash after the increase in ELA, one of the people said. Weekly ELA injections are intended to match deposit outflows, and liquidity buffers are kept at about 3 billion euros to give the Bank of Greece and the ECB time to react in an emergency.

The ECB is studying measures to rein in ELA funding to reduce the risks should political talks falter, according to people with knowledge of the matter. Staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece. Adjustments to the so-called haircuts haven't yet been formally discussed by the Governing Council.

Greek Finance Minister Yanis Varoufakis told reporters late on Tuesday that the country and its creditors are narrowing their differences, though the Latvian meeting is probably too soon to seal an agreement. The best chance for success is an accord that leaves all parties somewhat unsatisfied, as a failure would be "catastrophic," he said in Athens.

The anti-austerity coalition government has repeatedly expressed confidence that a deal to unlock bailout payments was imminent, only to be refuted by euro-area officials seeking concrete steps.

WP