The rules on ELA, can the ECB shut Greece out?

After the decision of the ECB to stop accepting Greek bonds as collateral, how can the Greek government draw liqiluidity from the ECB if loans from the Troika cease? The BoG could extend its use of Emergency Liquidity Assistance which is not subject to ECB collateral rules to offer liquidity to commercial banks which would then buy Greek paper. Greece will then use this cash to fund itself, but up to what amount and for how long?

The ECB rules on the use of the ELA are here. The question is if the BoG ignores an order from the ECB to stop ELA, what happens then? See previous post for the apocalyptic conflict scenario.




4 thoughts on “The rules on ELA, can the ECB shut Greece out?

  1. Tsipras letter to Merkel (from FT) about meeting on 23.2.15

    “(a) On 4th February the European Central Bank lifted the waiver for minimum credit rating requirements for marketable instruments issued or guaranteed by the Hellenic Republic, while declaring that the waiver would be restored when an agreement was reached at the level of the Eurogroup. Moreover, even since the Greek banks were referred to the Bank of Greece’s ELA facility, the ECB has been raising the ELA’s ceiling at shorter intervals than normal and at rather small increments that incite speculation and spread uncertainty vis-à-vis Greece’s banking system. Additionally, the ECB determined that Greek banks cannot hold more T-bills than they did on 18th February 2015, thus restricting their participation to well below the T-bill cap. (Please note that, in the summer of 2012, when a new Athens government was in a similar situation to ours, ELA was being expanded generously, the T-bill issuance cap was lifted to allow the government to finance its debt repayments to our creditors, and banks were not restricted to any limit corresponding to a prior date’s holding. In that manner the government of the time and the Eurogroup were granted sufficient ‘space’ to reach an arrangement that allowed the Greek banks to move away from ELA and back to normal ECB financing methods.)”

    This, in one place, is the entire bill of particulars that Tsipras has against the ECB. They are complicated, so let’s take them one by one. The first one – the reference to the waiver – is the same issue mentioned at the start of the letter.

    When Greek banks were kicked out of the ECB’s normal emergency loan programme, they were forced to seek more expensive loans from the Greek central bank, which is known as ELA (for emergency liquidity assistance). Although the Greek central bank is the actual lender, the ECB must ultimately approve all ELA loans, and they’ve been keeping the Greek central bank on a very short leash, allowing only small increases periodically. Tsipras thinks that undermines confidence in the banking system, but the ECB thinks it’s just exercising its fiduciary duty.

    Lastly, and possibly most importantly for Greece’s immediate cash crunch, is a ceiling on the amount of T-bills (short-term debt normally issued as three-month Treasury bills) that can be purchased by Greek banks. Because Greek banks are now relying on ELA for their day-to-day operations, the ECB has a say on what that money is spent on. And because EU law prevents central bank money to be used to fund national governments, the ECB has imposed a cap on the amount of Greek government T-bills Greek banks can buy. This is a big problem because, given the current uncertainty, almost nobody other than Greek banks are buying Greek T-bills. The ECB has told banks they’re not allowed to purchase any more T-bills than the amount they held on the day Greece requested its bailout extension, 18 February (this wasn’t previously known), which means that when their existing T-bills come due, they can buy an equal amount, but no more. Overall, the bailout programme allows Greece to issue €15bn in T-bills, but the limit on Greek banks means Athens is now apparently below the €15bn ceiling. Tsipras wants to be able to issue more T-bills, and have Greek banks purchase them.

    The parenthetical refers to mid-2012, when Tsipras’ predecessor Antonis Samaras had just been elected and the ECB had far more lenient rules in place. The ECB argues that there is no double standard; Samaras was given leniency because he had promised to implement the existing bailout and started to do so. Tsipras, the central bank argues, repudiated the programme and has still not implemented its measures.

    “(b) Following past failures (of the previous government) to complete the scheduled reviews, disbursements under the loan agreements with the ESM-EFSF were discontinued (while those of the IMF were similarly delayed), yielding a substantial financial gap in 2014 and 2015. This includes the profits from the ECB’s SMP-sourced bond redemptions, which the ECB distributes to member states on the understanding that they be passed onto the Greek government.”


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