Greek Banks and ELA

The noose is tightening on Greece. Until last Thursday, private Greek banks that were having liquidity problems were allowed to get emergency financing from the European Central Bank by providing collateral for new loans.

The thing is, the collateral the ECB was willing to accept was the government bonds of the Greek government.

On last Thursday, the ECB announced that it would no longer accept this collateral.

This is a rather bald statement that they are no longer sure, that if the banks expect to make interest payments based on debt service paid by the Greek government, that this business plan will work.

For now, the ECB has switched to a more serious form of short-term relief for Greek banks called ELA, along with a higher interest rate. ELA gets reviewed every two weeks, and if it gets stopped, it’s hard to see the Greek financial system avoiding collapse.

This is not an improvement.