|
|
Greece’s banks have emerged as the most urgent vulnerability threatening to force the country out of the single currency.
Senior executives gave warning last week that they faced ruin as early as Monday this week without an agreement with creditors that would unlock further support from the ECB.
Their protracted closure and harsh capital controls have compounded the misery of ordinary citizens and further squeezed an already suffocating economy.
The outline of the bailout deal that Greece and its creditors agreed on Monday morning calls for a bank recapitalisation of up to €25bn in the autumn to restore the sector to health and pave the way for lifting capital controls in the months ahead.
More immediately, Mario Draghi, the ECB president, asked eurozone governments to provide financial guarantees that would enable the ECB to sustain or increase the €89bn in emergency funding it has already provided to Greek banks.
Doing so would allow them to reopen soon — albeit with limited services and capital controls.
The eurozone responded on Monday by making €10bn available through its bailout fund, the European Stability Mechanism, which could be deployed if and when a third Greek bailout package is agreed — a process that could still take several weeks to complete.
The funds would both guarantee the collateral pledged by Greek lenders seeking ECB emergency loans, and also act as a rescue fund for any bank that falls short of minimum capital requirements, according to officials familiar with the plan.
“If we waited for the full recapitalisation it would be too late for the ECB,” one EU official explained.
The ECB holds one of its regular policy-making meetings on Thursday. Before then, the Greek government has pledged to pass a range of economic reforms mandated by creditors in order to begin formal negotiations on the bailout.
Even if the Syriza-led government is able to secure the Greek parliament’s support, officials familiar with the ECB’s internal debate said it was unlikely to raise its cap on emergency liquidity to Greece this week.
Before it can act, the ECB also needs assurance that Athens will make a €3.5bn bond repayment to the central bank that falls due on July 20. It must also cover arrears totalling €1.5bn to the International Monetary Fund.