< Back to News

ECB Gives Greece Extra $1.1 Billion in Breathing Space

Greece1

The European Central Bank made more than 1 billion euros ($1.1 billion) of extra funding available to Greek lenders as euro-area finance officials told the Athens government it’s time to prove it can be trusted.

The Governing Council handed Greece the biggest increase in emergency funding in a month, raising the limit to just over 71 billion euros in its weekly telephone conference on Wednesday, according to two people familiar with the decision who asked not to be named because the call was private. An ECB spokesman declined to comment. The Frankfurt-based institution’s move is its latest to defer a financial meltdown in Greece as euro-area governments hold back bailout money, complaining Prime Minister Alexis Tsipras hasn’t convinced them his economic plan can meet their requirements. Greece has until Monday to offer sufficient detail on the program, after finance ministry deputies reviewed the situation on a Wednesday conference call.

“It would be tragic if Greece gives up the reform process now and its achievements are thrown away,” ECB Governing Council member Jens Weidmann, the Bundesbank chief, said in Munich on Wednesday.

That comment was echoed by Governing Council member Yannis Stournaras, the head of the Greek central bank, who spoke later the same day in London.

‘Historical Opportunity’

“Grexit would deliver no benefit but a lot of pain,” he said. “The new Greek government has a unique opportunity to implement bold structural reforms, which would be backed by a large majority of political forces in the country. This is in my view an historical opportunity which should not be missed.”

Greece has to begin making 1.5 billion euros of monthly pension and salary payments on Thursday and the government is already yanking cash from public companies to cover its obligations. European officials say Tsipras could run out of funds within weeks.

Stournaras acknowledged that the crisis has unsettled the banking system, saying that there has been “some outflow of deposits due to uncertainty.” He said the ECB’s Emergency Liquidity Assistance has stabilized the situation.

While ECB policy makers are ensuring lenders have sufficient liquidity to operate, the central bank’s supervisory arm is also making it difficult for banks to channel that funding to the government, banning them from increasing their holdings of short-term public debt.

‘Getting Things Done’

Greece needs to act faster so its actions can be more effective, Jeroen Dijsselbloem, who heads the euro-area finance ministers’ group, said in Rotterdam on Wednesday.

“The main problem is the same in every country in Europe: getting things done,” he said.

Unless Greece delivers adequate proposals on Monday, the process of approving aid payments will be further delayed by the Easter holiday that begins on April 2 in some parts of the currency bloc. Once Greece submits its next documents they’ll need to be reviewed by the country’s official creditors and then the finance deputies before ministers will consider releasing funds, one of the officials said.

Tsipras needs to meet Monday’s deadline to start rebuilding the confidence of his partners, according to two European officials. After a month of delays and debates, euro-area governments have zero trust in Greece’s ability to deliver effective policy, one of them said.

No Expectations

On the finance officials’ call, participants left the door open for Greece to tap 1.2 billion euros that has been allocated to aid the banking system, if the cash-strapped nation can show how it will move ahead with the changes that its creditors are seeking.

Earlier this week, Greece sought to gain access to that money by saying it had already met the terms for its disbursement. As a condition of last month’s rescue extension, Greece had to return 10.9 billion euros in bonds to the European Financial Stability Facility that had been sitting in its bank-rescue fund. Athens said some of that money had already been spent helping banks.

Finance deputies said Greece shouldn’t expect to get hold of the money unless it meets its aid conditions and follows all necessary procedures, including parliamentary approval in some countries.

Greece has “no reason to have recourse to this money,” German Finance Ministry spokesman Martin Jaeger told reporters in Berlin.

(Source: Bloomberg)