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4th Mar 2024

'Money time' for Greece

  • A bank on Mykonos island. Massive withdrawals trigger fears of the Greek banking system. (Photo: yuankuei)

The Greek government and its creditors are preparing an emergency eurozone summit on Monday (22 June), amid massive cash outflows from Greek banks.

"It's money time," EU finance commissioner Pierre Moscovici told the Luxemburger Wort newspaper after an inconclusive Eurogroup meeting on Thursday (18 June), in a reference to the last minutes of a basketball game.

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Another meeting of euro finance ministers followed by a summit of eurozone leaders will, on Monday (22 June), try to strike a deal to unblock the last €7.2 billion tranche of the Greek bailout programme, which ends on 30 June.

A deal is necessary to avoid a Greek default at the end of the month and a possible Greek exit from the eurozone.

The uncertainty has prompted many Greeks to withdraw their money from Greek banks, raising fears of a collapse of the Greek banking system.

For its part, the European Central Bank (ECB), on Friday, again raised the level of the Emergency Liquidity Assistance (ELA) scheme, its lifeline for Greek lenders, by €1.8 billion, to €85.9 billion.

An earlier increase, of €1.1 billion on Wednesday, proved insufficient in the face of the €3 billion withdrawn by Greek savers in the last four days. The outflow remained high on Friday.

The ECB would not confirm whether it would be ready to raise the ELA ceiling as often as necessary.

The bank run triggered rumors of an imposition of capital controls in Greece.

ECB executive board member Benoit Coeure told euro Finance ministers on Thursday he’s not sure Greek banks would open on Monday.

Capital controls would have to be requested by the Bank of Greece to the Greek government and, probably, voted on by the Greek parliament.

Greek finance minister Yanis Varoufakis said Thursday that such a measure "would be the precise antithesis of a monetary union."

"It would mean we have accepted the monetary union has failed”.

One source told EUobserver that as long as the ELA is sufficient, capital control might not be necessary.

"There will be no capital control, bank deposits are guaranteed and the banking system is solid", the Greek government said in a statement Friday.

But a bank holiday in Greece during the weekend and especially on Monday could stem panic.

Meanwhile, the three creditor institutions - the EU, the ECB, and the International Monetary Fund (IMF) - renewed their calls for the Greek government to come up with new proposals for budget saving measures and structural reforms.

The budgetary primary surplus, VAT rates, and pension reform remain the three blocking points in negotiations.

Bailout extension

On Thursday, Eurogroup president Jeroen Dijsselbloem suggested that the bailout programme would be extended in order to help bridge the Greek funding gap.

The Greek government asked for a nine-month extension, but a six-month extension is more likely.

In this case, a €10.9 billion fund earmarked for the recapitalisation and resolution of Greek banks could be used to refinance the Greek government.

The money would be disbursed in several stages, linked to clear Greek commitments on reforms or implementation of specific reforms.

This scenario was on the table earlier this month before the talks collapsed on 14 June.

EU and diplomatic sources said Friday that it would be discussed by ministers and leaders on Monday only if the Greek government submitted "credible" proposals.

"We are flexible, but we are waiting for clear propositions to compensate" lower cuts in pensions and a lower VAT on electricity, an EU source said.

Even if a deal is reached on Monday, or at the EU summit on Thursday (25 June), time is too short to disburse the money necessary for Greece to repay the €1.6 billion IMF installment due on 30 June.

IMF chief Christine Lagarde said on Thursday that in this case there would be "no period of grace" and that Greece would be in default on 1 July.

But a bailout extension deal would open a possibility for the ECB to raise the cap on short-term treasury bills which Greece can issue.

The Greek government could then try to borrow the money necessary to repay the IMF on time.

As in the case of the bailout extension itself, the condition is that "a strong and credible agreement with Greece is needed", ECB chief Mario Draghi said earlier this week.

Talks are expected during the weekend between the Greek authorities and the creditors to prepare Monday's meetings.

"The ball is in the Greek court and it is becoming dusty," a diplomatic source said.

Tsipras and Putin

For his part, Greek PM Alexis Tsipras met with Russian leader Vladimir Putin at a business forum in St. Petersburg on Friday.

The meeting raised concerns he might sell his EU sanctions veto to Russia in return for Russian financial assistance.

Tispras in St. Petersburg harrangued Greek creditors for their “blind insistence” on pensions cuts and austerity “which harm social cohesion, which aggravate the recession”.

He noted that “Russia is one of the most important partners” for Greece and that the EU is no longer “a hub of the universe”.

He added that the “vicious circle” of Russia sanctions should end and called Ukraine a “wound of instability” in Europe.

The Greek PM also signed a non-binding memorandum with Russian gas firm Gazprom to build a new pipeline through Greece.

The project is designed to link south-east Europe to Turk Stream, a Russia-Turkey pipeline bypassing Ukraine and replacing Russia’s defunct South Stream pipe.

This article was updated at 20.19 on Friday 19 June 2015 to take into account Greek governmental sources informations about the amount of the ELA increase by the ECB

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