The European Central Bank (ECB) is constantly adding pressure to Greek banks, threatening to withdraw emergency funding if the country’s government does not compromise. In a time that the newly elected leftist Greek government is attempting to renegotiate the terms of the country’s bailout program with the EU/ECB/IMF Troika, ECB is threatening Greek banks with a sudden default by disrupting liquidity inflow. At the same time, the SYRIZA-led government in Athens is hoping to abolish the Troika and its replacement by a so-called “European debt conference” to renegotiate the new terms of its debt repayment. On the opposite, the Troika (with the firm support of the German government) intents to keep the current deal, signed with the previous Greek government, which aims to lower the debt from 175% of GDP to 124% by 2020 through unpopular austerity measures. Amid the new government’s attempt to renegotiate, the ECB governing board is insisting that its funding may be cut off at the end of the month, unless a compromise between the two sides is achieved. According to a Business Insider report, Greece enjoys special dispensation, allowing its banks to use Greek government debt as collateral in exchange for ECB funding, despite being rated as “junk.” This waiver was granted as part of a deal under which the country committed to undertake a package of structural reforms insisted upon by the Troika in exchange for bailout money. Although, if this waiver is withdrawn, then Greek banks will no longer be able to exchange bonds on their balance sheet for ECB loans. Without that support, the sector could face widespread bankruptcies and could in turn push the country closer to collapse. “Do not believe for a minute that this is a technocratic thing to do with ‘the ECB having to follow its rules.’ And it has almost nothing to do with Greek government bonds being junk-rated. All of the issues discussed above come down to discretionary decisions by the ECB Governing Council (restrictions on T-bills, waivers on junk-rated government bonds, arbitrary lines-in-the-sand on government guaranteed bonds and the mysterious rules of ELA) and there is plenty of wiggle room for them to allow Greek banks to continue receiving various sources of funding next month in the absence of an EU-IMF program agreement,” the same reports highlighted, citing Professor Karl Whelan of University College Dublin, who said ECB’s stance is designed to push Greece’s government into a new compromised deal.
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