14 July 2015

Reuters: Reforms, debt repayment could pave way for ECB to help Greece

The European Central Bank could ease a funding squeeze on Greece this week, but it would first need Greek lawmakers to sign off on reforms and to be assured that payment due soon from Athens will be made, people familiar with the matter have said.

The hurdles are significant but with Greece's leftist government likely to harness cross party support for reforms, marking a u-turn after a 'no' vote to austerity, there is a prospect of gentler ECB treatment to inject fresh cash and let shuttered banks open.

Should parliamentarians in Athens vote on Wednesday to pass stringent laws, that could prompt Europe to agree temporary or 'bridge' finance for Greece, allowing it to clear a large debt to the ECB on Monday.

That, in turn, could free the ECB to pitch in too, by approving extra emergency central-bank funding for the first time in roughly three weeks, giving a small lift to Greece's flagging banks and the wider economy.

Two people with knowledge of the matter said an extension of so-called Emergency Liquidity Assistance (ELA) beyond its current 89 billion euro limit would be possible under these circumstances, when central banks chiefs and ECB President Mario Draghi's executive meet on Wednesday and Thursday.

In late June, it officially froze this aid, forcing the banks to shut and ration cash withdrawals to 60 euros a day.

Releasing the squeeze could allow them to open, giving a semblance of normality to the country's high streets, although officials expect banks would continue to limit withdrawals.

It would nonetheless allow the central bank in Athens to release cash that one official said was now held in its vaults for an emergency, via the banks into the economy.

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© Reuters