Greece will request an extension of its loan agreement from its euro zone partners on Thursday morning, a Greek government official said today. Athens was initially expected to ask for an extension today.
“The request will be submitted tomorrow,” the official said on condition of anonymity.
The new government refuses to seek an extension of the EU/IMF bailout programme, which is due to expire on February 28, because of its demands for austerity policies. Instead it wants to extend an agreement on loans.
The European Central Bank faces resistance from Germany to allowing any extra emergency lending for Greek banks, people familiar with the matter said, increasing pressure on Athens to sign up to an extended aid-for-reform programme.
While the ECB is unlikely to lower the ceiling on emergency lending assistance (ELA) by the Greek central bank, a refusal to increase it would nonetheless be bad news for Greek banks, which are close to using up the full €65 billion granted so far.
The meeting of central bank chiefs from across the euro zone will begin at 3pm Irish time and run into the evening.
While the ECB does not want to be sucked into an intensely political debate, the governors’ decision is key to Greece’s fate.
Tensions are running high after talks between Greece and its euro zone creditors broke down acrimoniously on Monday.
Opposition in EU paymaster Germany will make it difficult for the ECB to cut Athens any financial slack.
Bundesbank chief Jens Weidmann, who has warned against the misuse of the emergency funding to indirectly finance the Greek state, will take a restrictive stance at the ECB meeting, the sources said.
Some other governors have similar reservations. They are also insisting Greek banks should not use ELA to increase their holdings of short-term Greek government treasury bills, since that would be tantamount to back-door illicit monetary financing of the state.
Unless Athens agrees an extended aid programme soon, keeping ELA capped would put lenders in a funding squeeze that could require the introduction of capital controls to limit savers taking out more of their money, the sources said.
A senior Greek banker told Reuters up to €500 million had been withdrawn from Greek bank accounts on both Thursday and Friday last week. There was a lull on Monday but deposit outflows picked up again on Tuesday after talks collapsed, the banker said. ECB officials are keeping tabs on such movements daily, people familiar with the matter said.
CAPITAL CONTROLS?
“The situation of the banks is getting more and more difficult every day,” said a European official.
“In the end, in order to safeguard the banking system, capital controls will probably have to be imposed.”
It was not clear whether the ECB would issue any statement after Wednesday’s meeting. While they are loath to pull the plug on funding that is keeping Greece afloat, central bankers say allowing its banks to draw down more is equally problematic.
The ECB’s chief economist Peter Praet has cautioned that the funding is for the short term only. Austria’s central bank chief Ewald Nowotny recently signalled that the ECB would resume direct funding if Athens struck a deal to extend its EU/IMF bailout.
Frustration with Greece is growing. Euro zone finance ministers have given Athens until the end of the week to request an extension or lose financial assistance when the bailout expires at the end of February. Were the ECB to cancel all emergency funding for Greek banks, as it threatened to with Cyprus in 2013, it would leave Athens with no choice but to strike a new deal with its international backers or face bankruptcy.
But the ECB would be very reluctant to take such a step to cancel funding.
“Pulling the plug on Greece would have potentially catastrophic consequences,” said Ashoka Mody, a former IMF official who helped design Ireland’s bailout.
“The ECB’s threats are completely empty. Despite all the bluster, it has no choice. The ECB has to ask itself how it can stabilize the financial system, not undermine it.”
Reuters
