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ECB Increasingly Nervous about Grexit

varoufakis 21 Apr DPA
Greek Finance Minister Yanis Varoufakis.
  • Why it matters

    Why it matters

    • The dangers of a Grexit have steadily increased as the country runs out of money. The extended ELA means that Athens can survive for a little longer.
    •  
  • Facts

    Facts

    • The ECB has extended emergency loans, known as ELA, to Greek banks by about €1.5 billion to €75.5 billion.
    • Greece is due €7.2 billion from its current bailout program which runs out in June.
    • The eurogroup of European finance ministers are not expected to release the bailout funds at their meeting on Friday.
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The ECB is increasingly annoyed at the lack of progress by the euro zone’s politicians and nervous that it is being left to effectively manage the Greek debt crisis.

The bank’s president, Mario Draghi, does not want to bear the responsibility for a Grexit, sources told Handelsblatt. He is reported to have become “extremely nervous” about Greece.

As a result the Frankfurt-based bank is upping the pressure on Greece and its partners to find a solution, sources close to the central bank have told Handelsblatt.

Talks are still dragging on between the Greek government and its international lenders, in search of an agreement that would allow Athens to access the outstanding €7.2 billion tranche of its current bailout.

The ECB feels that, through its emergency assistance for Greek banks, it has given the governments time that has not been used, sources told Handelsblatt.

As a result the ECB was forced to increase its emergency liquidity assistance, known as ELA, to Greek banks by another €1.5 billion, in a teleconference on Wednesday, Handelsblatt learned from financial sources.

The bank had, however, also discussed proposals to limit ELA. One possible option would be to increase the discount imposed on the securities banks post as collateral upon borrowing from the Bank of Greece. Effectively, it would require the Greek banks to increase collateral at the central bank, something the banks are unlikely to be in a position to do. Therefore, such a decision was regarded as too risky, as the Greek banks are barely solvent enough now to qualify for ELA.

If the ECB were to pull the plug, it could indirectly provoke a Greek government default.

The country is running short of funds to pay for wages, pensions and basic public services. Unsure of the future, Greek depositors are pulling their cash from bank accounts, leaving the Greek central bank to match the outflow with ELA.

Yet, the ECB is increasingly irritated that it is bearing the burden of political crisis management.

“Draghi is in the worst position of all,” a euro zone representative said. Effectively the ECB is caught between a rock and a hard place. It does not want to be seen to be propping up insolvent Greek banks, which is in contravention of its own rules. However, withdrawing ELA would provoke a Grexit.

No one wants to take on responsibility for such a scenario, yet everyone knows things cannot continue as they are.

“Draghi and the ECB can’t be the ones who decide on a Grexit,” a representative of the euro zone said.

One possible scenario is that the ECB president calls for an emergency summit. “He has to clearly state when the ECB will no longer be prepared to maintain the ELA, and then demand that the politicians make a decision by that date,” the source told Handelsblatt.

Meanwhile, Benoit Coeure, a member of the ECB executive board, has said that  that he was optimistic that a solution could be found to the ongoing crisis.

“In recent days, there has been tangible progress in the quality of the discussions with the three institutions – the ECB, the European Commission and the IMF – which can be built upon,” he said in an interview with the Greek newspaper Kathimerini published on Wednesday. “Still, significant differences on substance remain and substantial further work is needed. We wish these discussions to succeed,” he said.

The ECB will continue to fund Greek banks as long as they stay solvent and have enough collateral, Mr. Coeure said.

“There will be a deal, a comprehensive agreement.”

Yanis Varoufakis, Greek finance minister

Greece is still talking to its European partners about a wider bailout, and there is still a chance that Greece may end up having to leave the euro zone, though all sides accept this may be problematic.

The International Monetary Fund’s Europe head, Poul Thomsen told Handelsblatt earlier this week that a Grexit would not be “without problems.”

“The consequences for Greece would, without any doubt, be traumatic,” he added.

The euro-zone finance ministers, known as the eurogroup, are meeting this Friday to discuss Greece’s situation and try to make progress on the terms of a new bailout. Many had hoped  that the eurogroup would release fresh funds for Greece this month, but this is now looking unlikely.

Greek finance minister, Yanis Varoufakis has said that he assumed that a deal could be reached. “There will be a deal, a comprehensive agreement,” Mr. Varoufakis told reporters in Athens on Tuesday.

“But this does not mean that there will be an agreement at Friday’s eurogroup.”

 

Tspiras waiting Miller DPA
Tspiras waiting to meet Gazprom’s Alexey Miller. Source: DPA

 

The talks between Greece and the eurogroup had appeared gridlocked earlier this year as the newly elected Greek government refused to implement austerity measures in return for more funds.

But one high-ranking EU-diplomat in Brussels told Handelsblatt the mood had changed and talks had “clearly taken off.”

All the same, a solution is still some distance away. “We are now at the point where we wanted to be two months ago,” the source said.

At their meeting in Riga on Friday, the ministers will probably only make an interim review of the situation.

It is only likely that they would sign off a release of any bailout funds at the following meeting on May 11.

 

Siobhán Dowling is an editor with Handelsblatt Global  Edition. Jan Hildebrand covers politics from Berlin, Jens Münchrath is heads the finance desk in Düsseldorf. Ruth Berschens, Handelsblatt’s Brussels bureau chief, also contributed to this report.  To contact the authors: dowling@handelsblatt.com, hildebrand@handelsblatt.com, muenchrath@handelsblatt.comberschens@handelsblatt.com

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