The board members of the European Central Bank have arranged to convene at noon in order to discuss the situation in Greece. Prior to the teleconference a meeting was held with representatives of the four systemic banks, in order to reevaluate the situation.
Following the meeting, the ECB will decide whether to carry on providing or suspending the emergency liquidity assistance to Greek banks. The four systemic banks will then convene with the Governor of the Bank of Greece Yannis Stournaras, who may request the imposition of capital controls from the Minister of Finances.
At present there is uncertainty as to the ECB’s decision, with the BBC citing well-informed sources suggesting that the ELA support will be suspended. Meanwhile Reuters reported that the French Prime Minister Manuel Valls doubts that the ECB will stop supporting Greek banks.
Given the panic that was caused by the announcement of the referendum, with Greeks rushing to ATMs to withdraw their savings, further support from the ELA will be necessary so that the Geek banking system can continue to operate smoothly. This, however, will mean that the Greek central banker will have to convince his colleagues at the ECB that there is a prospect of Greece being in a program after the 1st of July.
Should the ECB not be convinced, then there are two main options; to either carry out a discount on the collateral offered by Greek banks, thus reducing the amount of ELA that the Greek banking system can acquire or to initiate procedures requesting the payment of the 90 billion euros or so that Greek banks have borrowed via the ELA.
In both cases the imposition of capital controls will likely be deemed necessary. In the first case in order to ensure the stability of the domestic banking system and in the second to protect the ECB’s interests and minimize the Eurosystem’s loses in Greece.
