Sources from the Eurosystem, the European Central Bank has approved the provision of liquidity to Greek banks via the ELA mechanism for a further two weeks, until the 4th of March. The banks will be able to draw 68.3 billion euros, up from 65 billion that were previously available.
According to Reuters, the ECB board was split on Greece, due to the tension generated in the recent negotiations. Earlier the ECB had announced that it would not be accepting Greek bonds as collateral, in an effort to pressure the Greek government into accepting an extension of its existing bailout program.
The chief of the Bundesbank Jens Weidmann appears to have been one of the board members opposed to increasing Greece’s access to the ELA, with many other central bankers agreeing with him. Nevertheless, one banker pointed out that the role of the ECB is to defend financial stability, not give lessons to Greece.
The ECB’s chief economist Peter Praet has warned that increasing Greece’s access to ELA funds will only be short-term solution to the problem, while ECB president Mario Draghi wanted political guarantees before deciding on the further provision of ELA funding.
The former IMF officer and one of the designers of the Irish bailout program Ashoka Mody commented that “the ECB’s threats are completely empty. Despite all the bluster, it has no choice. The ECB has to ask itself how it can stabilize the financial system, not undermine it”.
