ECB's crucial decision on ELA

The ECB's Governing Council is expected to meet today to decide on ELA support for Greek banks. Following the outcome of the 11-12 July meetings, paving the way for a continuation of the negotiations, the ECB is likely to keep the ELA ceiling at the current level of €89bn and to moderately increase it only after approval of reforms by the Greek Parliament on Wednesday 15 July. 

However, even if the ELA is increased, the ECB is expected to maintain its cautious approach with a very gradual step up of the limit depending on the evolution of negotiations. Greek banks are in a very difficult liquidity position. 

Some Greek officials as well as ECB's members stated last week that Greek banks' liquidity needs have reached the ELA limits and could be out of liquidity soon, if the ECB keep the ELA ceiling unchanged They might manage the stressed situation until Wednesday, but are unlikely to survive for a longer period without more ECB funding.

"On the collateral side, any easing in the haircuts at the current stage is unlikely. As this is a risk management decision, the agreement on the program, the commitment toimplement structural reforms", says Barclays.

More importantly, the 20 July payment to the ECB are likely to be the necessary conditions for the Governing Council to reduce the haircut. This would result in an increase in the ELA eligible collateral buffer.