Wednesday, April 22, 2015

Greek bank shares slide to record low as ECB considers pulling the plug

By Mehreen Khan 21 April 2015

European Central Bank draws up plans to limit emergency assistance as Alexis Tsipras gears up to meet Chancellor Merkel

Greek banks have been under the squeeze as people have drawn their money out in droves

Shares in Greece's stricken banks fell to an all-time low on Tuesday after fears the European Central Bank was planning to finally pull the plug on the country's lenders.

A memo drawn up by the ECB's staff proposed capping the emergency assistance (ELA) that has been keeping lenders alive since the Syriza-led government entered office at the end of January.

Bank stocks fell by 4pc on the news, capping off a torrid run which has seen more than 50pc wiped off the value of lenders since the start of the year.


ELA has been drip fed to the country's banks as the Leftist government in Athens has struggled to meet the bail-out conditions demanded from its international creditors.

The assistance is provisional on Greek banks remaining solvent, but capital flight has seen banks hit the ceiling on the funds on an almost weekly basis.


Central bank president Mario Draghi has insisted Greek banks will continue to receive ELA. However, other members of the Governing Council have suggested the liquidity assistance should not continue after the summer. Any decision to remove the life-support would require a two-thirds majority among the bank's governing board.

Should the ECB pull the plug, Greek banks will go bust in a matter of months, said rating's agency Standard & Poor's.

"In the absence of support from the European authorities, we believe that a default of these Greek banks appears inevitable within the next six months," said S&P.

With the clock ticking on the country's future, Greek prime minister Alexis Tsipras is due to meet with Chancellor Angela Merkel on Thursday.

The pair last met during an official visit to Berlin by the Greek premier earlier this month. It is thought the Leftist government sees Ms Merkel as their best hope for reaching an agreement before a series of crunch repayments to the IMF are due at the beginning of May.

Continued reliance on emergency funding has seen Greece's Euro system liabilities top €110bn over the last few months. These Target2 liabilities at the European Central Bank raise the cost of a Grexit for the rest of the Eurozone, including Germany, the bloc's biggest lender.


With Athens’ liquidity crisis becoming desperate, the government issued an emergency decree forcing all local government bodies to transfer their cash reserves to the Bank of Greece on Monday.

The move, which has caused consternation for Mr Tsipras at home, was pushed for by the Brussels Group of lenders, who urged the government to seize the funds if they wanted to continue paying out public sector wages and pensions in May.

The cash transfer will add an estimated €1.2-€2bn to the government's coffers helping the country stay afloat for at least another six weeks.

Athens’ precarious future in the Eurozone has also raised alarm in Washington, with the White House's chief economic adviser saying that a Grexit would jeopardise the fragile confidence in the global economy.

"A Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right,” said Jason Furman.

The comments directly contradict those of the German finance minister Wolfgang Schaeuble who has played down the prospect of contagion, insisting markets had fully priced in the costs of Greece becoming the first country to leave the monetary union.

Brussels officials have now all but dismissed hope that an agreement to release €7.2bn worth of emergency cash will be secured at a euro group meeting on Friday.

The group’s president Jeroen Dijsselbloem, warned Athens they were running out of time and money, but insisted Grexit was “not an option”.

With a release of bail-out money looking increasingly unlikely, Greece has been courting funds from the Kremlin.

The head of Russian-backed Gazprom Alexei Miller visited Athens on Tuesday for “constructive” talks over a proposed gas pipeline running through the country.

Prime Minister Alexis Tsipras welcomes the head of the Russian energy giant Gazprom, Alexei Miller (Source:ANA)

It is thought that Moscow stands ready to provide up to €5bn to the cash-strapped economy, as an advance payment for the pipeline dubbed “Turkish Stream”.

Greek bank shares slide to record low as ECB considers pulling the plug - Telegraph