In blocking their last relatively normal route of financing, the European Central Bank has further weakened Greek banks which have for years been operating on life support, experts said Thursday.
From February 11, the ECB will no longer allow Greek banks to use government bonds, which are classified as junk, as collateral for its loans, AFP reported.
The move has a knock-on effect on the state, as Greek banks have been the main buyers of the short-term bonds that Athens has been routinely using to cover its running costs.
Greek lenders currently hold about 18 billion euros in government debt securities, according to Frederik Ducrozet, an analyst at the French bank Credit Agricole.
Athens insisted Thursday its banks were financially secure, noting they still had recourse to the ECB’s emergency liquidity assistance (ELA) program, which allows the eurozone’s central banks to make emergency loans to troubled commercial banks.
Indeed, the ECB has given the green light to increase the funds available to Greek banks through this scheme to 60 billion euros ($68.5 billion), a banking source told AFP Thursday.
But Platon Monokroussos, an economist at Eurobank, noted that this form of funding was far more expensive.
“ELA constitutes a more expensive source of liquidity for Greek banks,” with rates of about 1.55 percent compared to about 0.05 percent on current ECB funds, he said.
This figure is dwarfed by that recorded at the height of the Greek crisis in 2012 and 2013, when the Greek banks were drawing 100 billion euros of ELA funds every month.
What Will Savers Do?
“The big unknown is the reaction of the Greek people,” said Nathalie Janson, an economist at Neoma Business School in the northern French city Reims.
If savers start withdrawing their money from Greek banks in large numbers, it could provoke a run on the banks – and the lenders could quickly run out of cash.
Dario Perkins, an economist at Lombard Street Research, noted that pension funds had withdrawn five billion euros in December.
“Various Greek officials are talking about 11 billion euros (of outflows) in January but they could be underestimating,” he told AFP.
Failure
But Jens Bastian, of the German foundation Friedrich-Ebert Stiftung, said they had failed in “their primary mission, which is to provide the real economy with rapid, affordable funds”.
Greece’s four main banks – National Bank, Piraeus Bank, Alpha Bank and Eurobank, which control 90 percent of the market – have been recapitalized twice since 2013 but remain vulnerable.
Loans which may never be paid back account for a third of their balance sheet, analysts say.
Another problem is the plunging share price of these institutions, which makes it difficult if not impossible to attract the new shareholders that they need.
Clash
Greece’s new leftist finance minister clashed openly with his powerful German counterpart on Thursday as Athens’ borrowing costs leapt and bank shares plunged following the European Central Bank’s decision to stop funding the country’s lenders.
After blunt talks in Berlin, German Finance Minister Wolfgang Schaeuble said he had told Greece’s Yanis Varoufakis it was not realistic to make electoral promises that burdened other countries, and they had “agreed to disagree”.
A defiant Varoufakis, whose hard left-led government was elected on a platform of scrapping austerity measures and negotiating a debt write-off, contradicted him at a joint news conference, saying: “We didn’t even agree to disagree.”
Schaeuble said he and Varoufakis had been unable to bridge their difference. And while he respected the choice made by Greek voters, it was essential the new government stick to agreements reached with the European Union and work with the IMF, the ECB and the European Commission.
