The ECB decides to keep the amount of money lent to the Hellenic financial system

The European Central Bank has decided to continue supporting Greece’s financial system by maintaining emergency loans (ELA) for banks, the institution said in a statement after holding an emergency teleconference on Sunday. “The ECB takes note of the decision of a Greek referendum and the non-extension of the rescue program,” they said.

That maximum amount of emergency loans is around 89,000 million euros The emergency provision to Greek banks would be at the same levels set on Friday, about 89,000 million euros, but the ECB adds that “it remains prepared to reconsider its decision ” They also add that they will continue “working very closely with the Central Bank of Greece to maintain financial stability.”

The monetary entity welcomed “the commitment of the ministers of the Member States of the euro area to take all the necessary measures to further improve the resilience of the economies of the euro area and to be prepared to take decisive steps to strengthen the Economic and Monetary Union “.

“We will continue to work closely with the Bank of Greece and strongly support the commitment of the Member States to act to address the fragilities of the euro area economies,” said ECB President Mario Draghi.

The Bank of Greece governor, Yannis Stournaras, said that institution, “as a member of the Eurosystem, will take all necessary measures to ensure the financial stability of Greek citizens in these difficult circumstances.”

The government council looks closely at the situation in the financial markets and the implications for monetary policy and for the balance of risks in the face of price stability in the euro area, the ECB added. The European Central Bank emphasized that it is determined to use all available instruments within its mandate.

The lifeguard of the Greek banks

During all this time, the ECB has been the lifeguard that has kept Greece within the euro, by providing its banks with the essential liquidity so as not to fail. The bankruptcy of the Greek financial system, much more than the accumulation of public debt, would have meant the immediate exit of Greece from the monetary union.

Apart from keeping the Greek banks in a kind of assisted breathing, the ECB has been at the forefront of the profound changes that the architecture of the Eurozone has required to survive the Greek storm.

In particular, the launch of a bond purchase program for states with liquidity problems – very questioned and even denounced before the courts of Germany and the EU – has been fundamental to contain the contagion of financial turmoil and restore confidence in the euro.

So far, the support of the ECB has served so that the four largest banks in Greece have not already declared bankruptcy

The ECB has been supporting Greece through the urgent liquidity provision (ELA) program, through which Greek banks can request emergency loans from the Bank of Greece.

The maximum amount that Greek banks can request from the Bank of Greece, with the authorization of the ECB, is now close to 90,000 million euros. The support of the ECB has served so that the four largest banks in Greece have not already declared bankruptcy.

The ECB has been reviewing this amount daily for a week after the intensification of capital flight and the withdrawal of large amounts of cash from Greek banks for fear that the country could impose a “corralito” and end up leaving the zone of the euro.

However, the strong outflows of deposits from banks still make us fear the imposition of capital controls in the country.

The 2014 unpaid returns on Greek bonds purchased by the ECB through the first debt purchase program amount to some 1,900 million euros.

The European Central Bank agreed to distribute the benefits of the purchase of these bonds because it did not participate in the restructuring of the Greek debt of the private sector since it would have been stating financing.

Since May 2010

The ECB and the central banks of the euro area began buying in May 2010, under the presidency of the French Jean-Claude Trichet, sovereign debt of Greece that could no longer be financed in the market at reasonable interest rates.

The monetary institution has acquired, through this first debt purchase program, Greek bonds for a nominal value of 19,800 million euros and accounting for 18,100 million euros, as well as an average maturity of 3.5 years.

Athens must pay the ECB in July and August 6,700 million euros

Although the purchases were stopped in March, this program ended in September 2012, when the ECB decided to start a second debt purchase program, which has never been applied but served to stop speculative movements in the market, which then penalized Spain and Italy.

Two months earlier, at the end of July, ECB President Mario Draghi announced in London that the entity was willing to do whatever was necessary to save the euro and “believe me, it will be enough,” Draghi said. His words were enough to relax the tensions and give a respite to the risk premiums of the peripheral countries.

Since March of this year, the ECB and national central banks have purchased large amounts of public debt from euro area countries, but Greece is excluded from this program. Athens must pay the ECB in July and August 6,700 million euros.

The position of the Bundesbank

The Bundesbank (central bank of Germany) has opposed all sovereign debt purchase programs because it considers that it is a form of state financing, something that the ECB is prohibited.

Due to this discrepancy, the then president of the Bundesbank Axel Weber resigned in April 2011 and in 2012 the chief economist of the ECB J├╝rgen Stark. The objections of the German monetary authority to the way in which the ECB leads the Greek crisis have not disappeared.

The current president of the Bundesbank, Jens Weidmann, said last Thursday that the dependency on the part of the financial entities of the emergency liquidity of the Bank of Greece questions, in fact, its solvency.

“It should be clear to all parties in the current negotiations that the Eurosystem (consisting of the national central banks of the euro area and the ECB) should not provide bridge financing to Greece, even in anticipation of subsequent payments,” Weidmann said.