European Central Bank refuses to increase credit for Greece

Published 28.06.2015 21:28
Updated 28.06.2015 21:29
People wait in a queue to withdraw money from an ATM outside a branch of Greece's National Bank in Athens yesterday. Greek PM Tsipras called for a referendum on the Greek debt deal on July 5.
People wait in a queue to withdraw money from an ATM outside a branch of Greece's National Bank in Athens yesterday. Greek PM Tsipras called for a referendum on the Greek debt deal on July 5.

The European Central Bank refused to increase its emergency cash lifeline to Greece while Greeks were lining up to get cash from ATMs. The country's minister of finance poposed an unusual offer for the ECB to pay IMF loan

The European Central Bank (ECB) said on Sunday it would keep open its emergency cash lifeline to debt-hit Greece but not increase help to banks, leaving the country facing as financial crunch as a bank run gathered pace. On the other hand, Greece's finance minister is suggesting that his country might not pay the 1.6 billion euros ($1.8 billion) it owes to the IMF on Tuesday.

Greek Finance Minister Yanis Varoufakis refused to reply to a direct question Sunday on the payment. Instead, he told BBC radio that the European Central Bank should pay the money to the IMF out of the profits it made on Greek bonds in 2014. Varoufakis calls that idea "a very sensible transfer."

Asked directly, for the second time, whether Greece will pay up Tuesday, Varoufakis replies: "We are owed money by one part of the troika and we owe money to another part of the troika? Why don't they sort themselves out and transfer money from one pocket ... to the other?"

The ECB's Governing Council held a telephone conference the day after talks between Athens and its creditors broke down, leaving Greece headed for a European Union-International Monetary Fund (IMF) default and possible exit from the eurozone.

Greece's four major banks will soon run out of cash and be forced to place restrictions on transactions. Those limits on withdrawals could keep Greek banks functioning but they would mean a deepening of the financial crisis and could take Greece a step closer to leaving the euro.

As anxious citizens lined up to get cash from bank machines, the Greek government appeared under pressure to impose capital controls limiting the size of withdrawals or overseas transfers. The ECB Governing Board said in a statement that it "decided to maintain the ceiling to the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on Friday. The Governing Council stands ready to reconsider its decision." The bank has been the lifeline keeping Greek banks - and by extension the Greek state - afloat with the ELA emergency cash through five months of tortuous negotiations that have now taken a sharp turn for the worse.

As fears grew of turmoil and contagion in financial markets on Monday, the ECB also said "the Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance."

The ECB - which has maintained ultra-low interest rates and launched large-scale quantitative easing measures - said it "is determined to use all the instruments available within its mandate" to maintain price stability.Bank of Greece chief Yannis Stournaras said in the same statement that his bank "will take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances."

The Greek government set up to hold an emergency meeting on Sunday night, after Daily Sabah went to print, and is considering imposing capital controls and closing the country's banks on Monday, Greek Finance Minister Yanis Varoufakis told BBC Radio.

The ECB has been permitting Greek banks to draw emergency credit from Greece's central bank, a financial lifeline that has been keeping the country's four major lenders going. The ECB has been slowly increasing the amount of emergency credit which has been compensating for the increase in withdrawals from Greek banks.

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