FRANKFURT (Reuters) – The European Central Bank slightly raised its emergency funding for Greek banks on Thursday in a move to help lenders reopen after the governments of the eurozone agreed in principle to grant a new loan to Athens three years.
The ECB president Mario Draghi said the bank’s governing council had increased emergency liquidity assistance by 900 million euros for a week at the request of the Bank of Greece.
“The provision of liquidity in accordance with our rules was never raised to be unlimited and unconditional,” he said at a press conference, saying that the Eurosystem central banks had a total exposure to Greece that had risen to 130,000 million (141.320 million).
Draghi said it was difficult to predict when they could raise capital controls imposed on 29 June following the breakdown of negotiations on the bailout, but said it was important to avoid a flight of bank deposits.
Greece Rejecting criticism that the ECB had left the Greeks without effective, he noted that the largest outflow of deposits coincided with political events such as the January elections and the collapse of the bailout discussions in June .
“Then consider unwarranted these observations that there was not enough liquidity assistance or there was a flight of bank deposits caused by the ECB,” he said.
Draghi said the ECB had always acted on the assumption that Greece would remain a member of the euro area of 19 nations, but emphasized that it depended entirely on the Greek authorities and other members states, not the central bank.
Earlier, the ECB held interest rates and Draghi said the central bank fully implement its program of government bond purchases for quantitative easing until September 2016, to support a recovery expanding economy and help the euro area back to its inflation target of just under 2%.
He promised that additional measures would be taken if necessary.
Repayment secured
Before agreeing increasing ALS, as is known by its acronym assistance offered by the ECB to banks The agency had to make sure that Greece will have the temporary financing to make a payment of 3,500 million euros plus interest owed to the ECB on Monday.
Draghi said that all evidence indicated that Greece would make the payment on July 20 and would resolve its arrears with the International Monetary Fund.
A temporary EU loan of 7,000 million euros (7,640 million) was agreed “in principle” but the arrangement of the technical details will take until Friday, responsible for the euro area said.
Draghi said the increase granted in the ELA was fully in line with the extra liquidity requested by the Greek Central Bank.
It also stated that the Greek crisis had brought to light the fragility of the euro area and the need for a stronger integration within the bloc.
“This union is imperfect, to be imperfect and fragile, vulnerable and does not provide (…) all the benefits it should if it were complete. In the future should take decisive steps to better integrate” , he said.
After the increase of ALS, Greek banks probably open only to small operations and limits for withdrawal at least until a rescue package is approved and banks receive at least part of the 25,000 million euros scheduled for recapitalization.
The ELA was unchanged from late June, forcing banks to close and limiting deposit withdrawals at 60 euros per day, hitting an economy already in recession. It has been reduced by about 25% since the start of the country’s problems.
Still, a limited opening of banks would create the impression of normality and allow the Greek central bank free up cash that one official said was now held in their vaults for emergencies, through banks.
Almost a third of economists polled by Reuters still expect Greece will eventually leave the euro and the IMF he said that Athens needs more debt relief than European governments are willing to contemplate.
While Germany ruled out a “haircut” to this mountain of debt, he said extending the maturities was an option and that the European Commission suggested a “very substantial reprofiling”. The IMF said Greece may require a grace period of 30 years on all its European service debt, including new loans, and a drastic extension of maturities.
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