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18th Jan 2020

ECB has no plans to pull plug on Greek banks

  • A deal with Greece is needed 'very soon' warned ECB chief Draghi (r) (Photo: europarl.europa.eu)

The European Central Bank (ECB) has no plans to pull the plug on emergency funding for Greece's stricken banking, bank boss Mario Draghi has said.

"The major Greek banks are solvent and the collateral they provide is adequate” Draghi told MEPs on Monday (15 June) during his quarterly hearing with the European Parliament's economics committee.

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However, he maintained that the ECB would not resume buying Greek government bonds until an economic programme had been thrashed out with its creditors.

The ECB withdrew a waiver that allowed it to accept Greek debts as collateral, restricting the Syriza government’s access to cash-flow, after Greek prime minister Alexis Tsipras halted implementation of his country’s bailout.

“We don’t buy bonds of countries that are under a review by the IMF [International Monetary Fund] and we don’t buy bonds that are below a certain rating unless these have a waiver", said Draghi.

“However, this waiver could be reversed by reaching an agreement ... and I really don’t think we are that far away. As soon as the negotiations are complete, all these requirements would be overcome", he added.

Bailout talks between Greece and the European Commission collapsed on Sunday over what the commission said was "a significant gap" between the Greek government and its creditors that left a €2 billion hole in Greece’s budget targets.

The impasse leaves Greece on the brink of a default at the end of the month, when its bailout programme ends and it faces a €1.6 billion repayment to the IMF.

Eurozone finance ministers will gather in Brussels on Thursday for a eurogroup meeting, although it appears highly unlikely that an agreement will be reached before next week’s EU summit.

In the meantime, all eyes will be on whether the ECB makes changes to the Emergency Liquidity Assistance (ELA) available to eurozone banks when it holds the monthly meeting of its governing council on Wednesday (17 June).

Last week, the governing council decided agreed to a €2.3 billion increase to the ELA ceiling for Greece, taking it to €83 billion.

Despite Draghi downplaying the role of the ECB in resolving the crisis, the Frankfurt-based bank would be one of the main losers from a Greek default and possible exit from the eurozone.

The ECB has pumped in €118 billion into the Greek banking system, equivalent to around 66 percent of the Greek annual economy, and more than double the amount exposed at the end of 2014.

Questioned by Elisa Ferreira, the Socialist group spokesperson on the committee, about the prospect of contagion hitting the rest of the eurozone if Greece defaulted, Draghi conceded that “we would be entering into unchartered waters."

"We have all the tools to manage the situation at our best,” he added.

Elsewhere, Draghi commented that the eurozone recovery was “proceeding at moderate pace”, and forecast that economic growth across the currency bloc would rise to 1.5 percent in this year followed by 1.9 percent in 2016.

He also reiterated the bank’s intention to continue with its €60 billion per month quantitative easing programme, scheduled to run until September 2016 at the earliest, and played down suggestions that the €1.1 trillion programme was adding risks to the bank’s balance sheet of liabilities.

The “risks are rather contained”, he noted.

Greece situation 'dramatic'

ECB chief Draghi has said "urgent action is needed" for a bailout deal, but Greek PM Tsipras says he's waiting for creditors' "realism".

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