After a thorough discussion within the European Central Bank’s (ECB) governing council, the monetary authority of Europe has decided to avoid being dubbed as the institution which led the Greek banking system into a default.
The ECB has maintained its lifeline on Greek banks at the previous level of €89 billion ($97 billion) in spite of the Greek “No” vote in the Sunday referendum. The Emergency Liquidity Assistance (ELA) program which the central bank extended to the Greek banking system has become overwhelming, yet not enough for the institution to pull the plug.
Collateral requirements have been increased at an unspecified amount
While the amount of loans remain unchanged, the collateral requirements have been increased. The haircuts to the collateral which the Greek banks have presently pledged to the ECB hasn’t been disclosed. Two members of the ECB’s governing council did not support the decision, asking for tougher measures.
Commenting on the announcement, Senior Analyst at FxPro, Angus Campbell, explained, “Capital controls are unlikely to be lifted for some time unless a deal can be agreed upon in the next day or so.”
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“The ECB has tightened up collateral rules for Greek banks to access its ELA and Merkel and Hollande made it clear yesterday that it is now up to Greece to come forward with new proposals since previous ones are redundant,” he added.
The background work is being done to prepare for a Grexit
Elaborating on the importance of today’s political events in Europe, Mr Campbell said, “Today’s summit will put Greece and its creditors at loggerheads making it difficult to secure a third bailout, meanwhile in the background work is being done to prepare for a Grexit, the chances of which have dramatically risen in the last 48 hours.”
Ideally the ECB is not going to pull the plug on Greek banks until the 20th of July, when the monetary authority of Europe is due to receive a €3.5 billion repayment from the Greek government.
“Any new measures put forward by Greece will include debt forgiveness, a red line for creditors, so if that red line remains in place then a deal is highly unlikely and the exit door will be swung wide open,” FxPro’s Senior Analyst Angus Campbell concluded.