ECB does not pull ELA plug for Greece

The ECB did not pull the ELA plug, as expected. Otherwise, the consequences would be a collapse of the Greek banking sector, plunging the country into an even more chaotic situation, and forcing the Greek government to issue a new parallel currency right now. For that reason, as a step one the ECB froze the ELA. This measure, combined with the reaction of Greeks rushing to ATM, forced the government into accepting capital controls and putting banks on holidays, notes Societe Generale. 

As a step 2, the ECB could potentially reduce its ELA provision (tapering ELA by increasing the haircuts on collateral). The ECB could also reduce or stop allowing Greek banks to roll-over Greek T-Bills. Also, before cutting ELA, the ECB might at a certain point be obliged to request the recapitalisation of some banks. In a nutshell, the decision to suspend ELA provision could happen, but only and only if backed by Euro area policymakers, says Societe Generale.