European Central Bank President Mario Draghi said yesterday that the ECB would keep approving funding for Greek banks provided they are solvent, calling for a “quantum leap” in the way the eurozone was organised.
Draghi’s remarks come after months of chaotic negotiations. As the talks go on, it has fallen to the ECB to keep Greece afloat, by allowing the country and its lenders to run up an ever-higher overdraft with the eurozone.
“Liquidity will continue to be extended as long as Greek banks are solvent and have sufficient collateral,” Draghi told the European Parliament, referring to the emergency funding for Greek banks.
But he signalled that there were limits to such assistance, which is now tipping €118 billion. Among those are rules that prohibit direct funding of governments by central banks.
We should ask ourselves whether the design of this monetary union is solid, resilient or still quite fragile and we should address the fragilities
“However, in a situation where the Greek government doesn’t have market access, this liquidity cannot be used to circumvent the prohibition of monetary financing,” he told lawmakers.
Talks between Greece and its eurozone backers collapsed at the weekend.
Without central bank cash to prop up Greece’s banks, which have seen deposits shrivel, controls on withdrawals appear unavoidable. Lending would evaporate and euros would become scarce, dealing the already weak economy a mortal blow.
Separately, the Greek government wants to raise the amount of short-term Treasury bills it can issue to tackle its cash crunch. But Draghi said that, to even consider this, it was necessary to see “a credible perspective for a successful conclusion of the current review and subsequent implementation”.
He added that this implied the eurozone countries sending more cash to Greece.
Draghi said it was up to the Eurogroup of eurozone finance ministers to decide whether to complete a review of Greece’s current bailout programme and send further funds to Athens. That, he said was a “political decision that will have to be taken by elected policymakers, not by central bankers.”
He called for “a strong and comprehensive agreement” with Greece “very soon” - not only for the sake of Greece but also for the wider eurozone. “While all actors will now need to go the extra mile, the ball lies squarely in the camp of the Greek government to take the necessary steps,” he said.
Draghi said that Greece’s crisis showed the single currency was “an unfinished business”, calling for a “quantum leap” in integration.
The ECB president is working on a report to deepen the European monetary union. It is to be discussed by European Union leaders at their meeting on June 25-26 in Brussels.
Yesterday, Draghi met the president of the European Commission, Jean-Claude Juncker, who is also charged with drafting the report.
“We should ask ourselves whether the design of this monetary union is solid, resilient or, as I hinted before, still quite fragile and we should address the fragilities.”