This Article is From Jun 19, 2015

ECB Boosts Emergency Funding as Greek Banks Bleed

ECB Boosts Emergency Funding as Greek Banks Bleed
Athens/Luxembourg: The European Central Bank (ECB) expanded emergency funding for Greek banks as savers pulled out 1.2 billion euros in a single day on Friday, bankers said, but Prime Minister Alexis Tsipras insisted the nation's future in the euro was secure.

With the country edging closer to default at the end of this month, Mr Tsipras assured Greeks that prophets of "crisis and terror" would be confounded, and his government would strike a deal with European Union and International Monetary Fund (IMF) creditors.

However, EU officials said Eurozone finance ministers would discuss on Monday how to handle a Greek default unless Athens made new proposals on reform and austerity to persuade the creditors to unlock aid blocked since August.

European Council President Donald Tusk said no one should assume that an emergency summit of Eurozone leaders he will chair on Monday evening would find a "magic solution".

"The game of chicken needs to end, and so does the blame game. Because this is not a game and there is no time for any games," Mr Tusk said.

Bankers told Reuters that after Friday's accelerated outflows, about 4.2 billion euros had flooded out of Greek accounts this week despite central bank efforts to restore calm. "Today was a more difficult day compared to yesterday," one of the bankers said. "Monday will likely be tough as well."

Earlier, a banking source said ECB policymakers had raised the limit on Emergency Liquidity Assistance - the lifeline keeping Greek banks afloat as deposits dive - for the second time in a week. There were contradictory reports about the scale of the increase, which the ECB never announces.

Officials said the ECB would review the limit again on Monday night after euro zone government leaders try to break the deadlock with Athens at an emergency summit in Brussels.

Greece is on course to default on a 1.6 billion euros debt repayment it must make to the International Monetary Fund on June 30 unless the creditors resume funding.

Mr Tsipras nevertheless exuded confidence and calm, going ahead with a planned meeting with Russian President Vladimir Putin on the sidelines of an economic conference in St Petersburg.

"All those who are betting on crisis and terror scenarios will be proven wrong," Mr Tsipras said in a statement issued by his office while he was in Russia. "There will be a solution based on respecting EU rules and democracy which would allow Greece to return to growth in the euro."

Russia played down any possibility of Russian financial aid for Greece. Asked if Mr Putin and Mr Tsipras had discussed the issue, Kremlin spokesman Dmitry Peskov said, "No, no, no."

Germany, the biggest contributor to the European bailout loans, held out hope on the chance of a deal at Monday's summit. "It's not too late for this and of course we hope that such an agreement is possible," government spokesman Steffen Seibert said in Berlin.

But Finance Minister Wolfgang Schaeuble, who has taken a hard line with Athens, was less optimistic. "I'm not sure I'll be able to announce anything sensational or new on Monday," he told reporters.

Central bank reassures

The Greek central bank - which has warned that the country's future in the euro and even in the EU is at risk unless the government strikes a deal with its creditors - tried to assure savers that the banking system remained stable.

Money has been seeping out of the banks since Greece first had to take a bailout from Eurozone governments and the IMF in 2010. But after a relative lull, withdrawals have risen in recent months, and accelerated sharply this week.

The ECB has been gradually raising the amount of emergency funding which is available at the Bank of Greece but the tempo has picked up as the crisis deepened. Earlier this week the limit was raised by 1.1 billion euros to 84.1 billion, but the banking source declined to give a figure for Friday's increase.

With his anti-austerity government refusing to accept the creditors' demands for pension reform and budget cuts, some anxious Greeks have been emptying their bank accounts. They fear that Athens will curb withdrawals under a capital controls regime, as Cyprus did during a crisis in 2013.

Greek central bank chief Yannis Stournaras tried to shore up confidence. "The governor of the Bank of Greece confirms the stability of the banking system, which is fully secured by the joint actions of the Bank of Greece and the European Central bank," the bank said in a statement.

Mr Stournaras drew fire from government supporters this week when the bank said in a report that failure to reach an agreement would "mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and, most likely, from the European Union".

Greece faces becoming the first Eurozone member to default. Mr Tsipras's government has refused the creditors' demands that it raise taxes and cut spending, particularly on pensions, saying this would deepen one of the worst economic depressions of modern times.

He is insisting the creditors must agree on debt relief for Greece as part of any deal. Berlin and its allies say any debt restructuring can be considered only once Athens completes its existing bailout programme and receives the remaining funds.

No signs of panic

So far, there have been no queues forming outside bank branches. "There are no lines or panic, it has been a quiet and gradual phase of withdrawals," said one of the bankers who disclosed the figures for withdrawals.

A government spokesman has denied plans for imposing capital controls to limit cash withdrawals and capital transfers abroad.

While fears of general disruption and chaos have grown in recent days, Greece's biggest oil refiner Hellenic Petroleum told Reuters it has in place a contingency plan to ensure Greece has enough fuel supplies for several months in case of a national emergency.

Although fed up with years of austerity, the majority of Greeks want to stay in the euro zone. Thousands took to the streets on Thursday night calling for a deal.

"The silent majority has spoken: we are staying in Europe," Greek daily Eleftheros Typos said, commenting on the rally.

($1 = 0.8850 euros)
© Thomson Reuters 2015