ECB raises Greek bank funding


The European Central Bank (ECB) raised its emergency funding for Greek banks slightly today in a step to help banks partially reopen after eurozone governments agreed in principle to grant Athens a new three-year loan.

ECB President Mario Draghi said the bank’s governing council had increased emergency liquidity assistance by 900 million euros for one week at the request of the Bank of Greece.

“Liquidity provision according to our rules was never meant to be unlimited and unconditional,” he told a news conference, saying the Eurosystem of central banks’ total exposure to Greece had risen to 130 billion euros ($141.32 billion).

Draghi said it was hard to predict when capital controls imposed on June 29 after the breakdown of bailout negotiations could be lifted, but it was important to avoid a run on the banks.

Rebutting criticism in Greece that ECB had starved Greeks of cash, he noted that the biggest deposit flight had coincided with political events such as the January election and the collapse of bailout talks in June.

“So I find these observations that there wasn’t enough liquidity assistance or that there was a bank run caused by the ECB quite unwarranted, certainly unfounded,” he added.

Draghi said the ECB had always acted on the assumption that Greece would remain a member of the 19-nation currency area, but that depended entirely on the Greek authorities and other member states, not on the central bank.

Earlier, ECB held interest rates steady and Draghi said the central bank would fully implement its quantitative easing bond-buying programme up to September 2016 to support a broadening economic recovery and help the euro area return to its inflation target of just below two per cent.

Before agreeing to raise ELA, the bank needed to ensure that Greece will have the temporary financing to repay a 3.5 billion euro plus interest payment due to the ECB on Monday.

Draghi said all evidence indicated that Greece would make that July 20 payment and clear its arrears to the International Monetary Fund.

A temporary seven billion euro ($7.64 billion) EU loan has been agreed in principle but technical details will take until Friday to iron out, eurozone officials said.

Draghi said the ELA increase granted was fully in line with the extra liquidity requested by the Greek central bank.