ECB raises Emergency Funds for Greece as backlash grows

The European Central Bank increased its funding lifeline to Greece’s banks again Tuesday, sources with direct knowledge of the decision said, allowing the country’s banks to stay open as Athens inches towards a deal with creditors.

But the latest increase, which one of the people said amounted to “a bit less than one billion euros”, prompted warnings from politicians in Germany and Ireland.

It raises the amount of Emergency Liquidity Assistance (ELA) to around 89 billion euros ($100 billion), a growing liability that is worrying many around the euro zone.

One of the people who spoke to Reuters said the decision had been prompted by “the positive signal from the leaders’ summit meeting” and hopes that a deal was at hand.

But Ralph Brinkhaus, deputy parliamentary floor leader for German Chancellor Angela Merkel’s conservatives, criticised the decision and called on Athens to introduce controls on the movement of money instead.

“Through the continuous increase of the limit for emergency credit by the ECB, Greek banks and, ultimately, the Greek state are artificially managing to keep their heads above water,” Brinkhaus said. “You have to ask yourself, what needs to happen before the Greek state finally introduces capital controls?”

Ireland’s finance minister warned that this emergency funding could be cut off unless a deal with between Greece and its creditors can be reached.

Michael Noonan, who guided Ireland through its financial crisis and has emerged as one of Greece’s toughest critics, said he had discussed the continuation of emergency liquidity with European Central Bank President Mario Draghi on Monday.

“The point I was making is that the new round of negotiations have a very short time frame to be concluded satisfactorily, or there is a risk that ELA will be cut off, because they are bound by legal arrangements in the European Central Bank,” Noonan told the Irish parliament.

“I believe it would be very important that an agreement with Greece would be fully negotiated by Thursday at the latest.”

The ELA increase, the third day in a row that the ECB has sanctioned additional funding, follows Athens’ presentation on Monday of new budget proposals that euro zone leaders welcomed as the basis for possible agreement.

However, Greek lawmakers reacted angrily on Tuesday, with parliament’s deputy speaker saying the government’s offers would struggle to win approval from the legislature.

With nervous Greek savers and companies withdrawing billions of euros in cash from their accounts, the country’s banks depend almost entirely on central bank funding to avoid collapsing and potentially dragging the country down with them.

The latest increase in ELA provides some breathing space as Greece’s Prime Minister Alexis Tsipras seeks to clinch a formal deal with euro zone backers.

If a concrete agreement is reached and there is a euro zone commitment to provide more funding, the ECB could also loosen restrictions that limit Greece’s ability to sell and fund itself with short-term debt.

Source: Reuters