ECB gives Greece a little breathing room

Mr Draghi tried to convince his audience that the ECB was not responsible for the deterioration of the Greek banking sector and remained cautious about the bailout plan and possible QE.

President Draghi announced the decision to raise ELA to Greek banks by €0.9bn. This decision will be revised in one week and may be sufficient for Greek banks to reopen next week. Mr Draghi justified the decision by saying that the quality of Greek banks' collateral has improved thanks to several recent developments. 

The Eurogroup announcement of the start of the negotiation process for a third bailout, the different successful parliament votes, the release of a bridge loan. He failed to convince, when he added that Greek banks might be solvent on current basic core equity measures, but could lack collateral. He suggested that capital controls were a good decision that preserved the interests of Greek depositors by preventing a bank run.

Mr Draghi stressed that the ECB acts within its mandate, i.e. the ECB works on the assumption that Greece is and will remain a member of the euro and that Grexit is a political choice. He indicated that the ESCB exposure to the Greek banking system currently stands at €130bn, a larger amount that the deposits of the domestic private sector.

Asked about the lack of transparency about ELA, Mr Draghi indicated that the ECB will change its communication policy when the issues are systemic or macroeconomic. The absence of a statement is justified when one individual bank is concerned. When a national banking sector is provided with ELA funding, the ECB will make the information public.

Regarding the negotiations on a third bailout, Mr Draghi said both the ECB and the IMF will be repaid on 20 July. He reiterated that Greece needs a plan that includes structural reforms,promotes growth and social fairness, is fiscally sustainable, and addresses financing stability. He said that some form of debt relief is necessary and uncontroversial. Yet, he did not give any hint at his preferred form of debt relief. The 13 July agreement stresses that nominal haircuts are impossible, whereas the IMF made it clear that a haircut or a fiscal transfer is required.