Wednesday, May 20, 2015

The ECB's in a Tight Spot Over Greece

May 20, 2015

European Central Bank policy makers will discuss Greek bank aid on Wednesday in a chore that is getting more uncomfortable every week.

The Governing Council is due to meet in Frankfurt to debate the Greek central bank’s request for an increase of 1.1 billion euros ($1.2 billion) in the emergency funding it can offer lenders, people familiar with the matter said. As Greece veers toward default, ECB officials are aware that their response could worsen the political crisis just as bailout talks show signs of progress.

ECB President Mario Draghi has repeatedly said politicians rather than unelected central bankers must decide on Greece’s future, and council decisions will be based on rules such as the solvency of its banks and a prohibition on state financing. European leaders will have their next chance at a summit on Thursday in Riga, Latvia.

“It’s very simple: the ECB doesn’t want to be the one that pulls the plug on Greece when political negotiations are still ongoing,” said Marco Valli, an economist at UniCredit SpA in Milan. “As long as there is the chance that Greece will remain solvent, that it might receive further European Union aid, then ELA can be given. Should this possibility disappear, then it will have to stop.”


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