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ECB to fund Greek banks as long as they stay solvent

The European Central Bank will continue to fund Greek banks as long as they stay solvent and have enough collateral, Executive Board Member Benoît Cœuré told a newspaper yesterday, dismissing talk that Athens might ditch the euro.

Worries over the standoff between the leftist-led government in Athens and its creditors – the eurozone and the International Monetary Fund – over reforms needed to unlock bailout funds has sparked uncertainty and deposit flight from Greek banks.

They have been relying on emergency liquidity assistance (ELA) from the domestic central bank, drawn against collateral, as progress on talks remains painfully slow.

ECB staff have prepared a proposal to reduce the value of that collateral, a media report citing people with knowledge of the discussions said on Tuesday. The ECB declined to comment.

The current situation is clearly not sustainable and requires quick and decisive action

ELA funding drawn from the Bank of Greece hit €68.5 billion in March as Greek banks suffered deposit outflows of €24 billion from December through February.

“The current situation is clearly not sustainable and requires quick and decisive action by the Greek authorities to turn things around,” Coeure told Greek daily Kathimerini.

Despite tangible progress in talks with the EU, the IMF and the ECB, he said significant differences remained and further work was needed.

Coeure said Greece leaving the euro was “out of the question”.

Capital controls were also not a working assumption. “In any case, it would not be up to the ECB to take measures of that sort. Those fall within the competence of national authorities,” he said.

“The euro area needs Greece just as Greece needs the euro. An overwhelming majority of the Greek population want to keep the euro. It is the responsibility of the Greek government to take the appropriate steps to ensure its policies are in line with these clear preferences,” he told the paper.

Asked about whether the ECB would return to Athens profits made on Greek bonds it bought at the height of the debt crisis, Coeure said that this hinged on Greece successfully concluding its bailout review.

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