ECB lends Greece a hand

At today's press conference, there were many questions about Greece, but ECB President Draghi gave only provisional answers. The Council decided to raise the ELA ceiling, but only by €0.9bn over one week. The ECB has therefore responded to the prospect of a third bailout programme, but Greece remains under pressure. - Regarding monetary policy, Draghi stressed that the ECB would react to any unwarranted tightening of its monetary policy stance

Anyone hoping for a quick statement from the ECB about Greece will have been disappointed. In his introductory remarks, the ECB President said nothing at all about the situation in that country. Only in answer to questions from journalists did he explain that the Council had raised the ELA ceiling by €0.9bn (previous limit: €88.6bn). The new limit would apply for one week, after which the ECB would reassess the situation. Draghi justified the slight increase in the ceiling by referring to the altered situation. He explicitly mentioned the vote in the Greek parliament, the approval of a bridge financing package (which was announced almost simultaneously with the press conference) and the votes in parliaments of other euro zone countries. 

The ECB left the haircuts on collateral accepted for ELA unchanged, as the Council has only recently increased them. Today's decision can be seen as a political gesture, whereby the ECB extends a helping hand to Greece, but in fact does little to reduce pressure on the country. Asked whether the ECB was concerned that Greece would - as in the past - fail to implement adequate reforms, Draghi said there were certainly doubts about Greece's will and capacity to implement measures. It was now up to the Greek government to dispel those doubts. However, the ECB could not take decisions based on such doubts, but instead had to proceed on the assumption of Greece remaining in the euro zone. The measures recently decided by the Eurogroup were aimed at allowing Greece to become a "thriving economy". 

"We expect that the ECB will continue to extend support via ELA emergency loans provided the negotiations are on track - without at the same time reducing the pressure on Greece by too much," said Societe Generale in a report on Friday.

Draghi did not say what would happen if Greece fails to service the SMP bonds maturing on Monday. He merely said he was confident that repayment would be forthcoming.