Fri | Aug 18, 2017

ECB refuses to increase credit for Greece

Published:Sunday | June 28, 2015 | 6:16 AM
In this Jan. 22, 2015 file photo President of European Central Bank Mario Draghi speaks during a news conference in Frankfurt, Germany.

ATHENS, Greece (AP) -- The European Central Bank refused to increase emergency credit to Greek banks on Sunday, a day after the government threw Greece's bailout negotiations into turmoil by calling a referendum on creditors' financial proposals.

The central bank's decision left Greek banks under increasing pressure and raised more questions about Greece's financial future and continued membership in the 19-nation shared euro currency. The specter of financial controls being put on Greek withdrawals to stop its banks from hemorrhaging funds loomed as an immediate possibility - or the chance that Greek banks might not even open Monday.

Anxious Greeks lined up at ATMs all weekend, draining deposits away. One ATM line in central Athens was a block long Sunday.

Those fears are driven by the fact Greece's international bailout runs out Tuesday, after which the remaining 7.2 billion euros ($8 billion) in the fund will no longer be available. Without a last bailout loan, it's unclear whether Greece will be able to repay the 1.6 billion euros ($1.8 billion) due to the International Monetary Fund on Tuesday.

Greece's European partners, surprised and angered by Prime Minister Alexis Tsipras' referendum call, said they would not accept an extension of the current bailout until Sunday's popular vote on the demands creditors are making of Greece to get the bailout loan. Further negotiations are, for the time being, dead.

Some European officials called for renewed efforts by both sides.

"We don't know - none of us - the consequences of an exit from the euro zone, either on the political or economic front. We must do everything so that Greece stays in the eurozone," French Prime Minister Manuel Valls told France's i-Tele TV on Sunday.

"But doing everything, that means respecting Greece and democracy, but it's also about respecting European rules. So Greece needs to come back to the negotiating table," he said.

Without an increase in emergency liquidity for Greek banks, which currently stands at just under 90 billion euros ($100 billion), Greece's four major banks could soon run out of cash and be forced to implement capital controls. Those restrictions could keep Greek banks functioning - but they would mean a deepening of the financial crisis and could take Greece a step closer to leaving the euro.

The ECB said it could reconsider its decision on credit levels.

"We continue to work closely with the Bank of Greece and we strongly endorse the commitment of member states in pledging to take action to address the fragilities of euro-area economies," ECB chief Mario Draghi said.

Yannis Stournaras, governor of the Bank of Greece, said the bank would "take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances."

The Greek finance ministry said the country's financial stability council, the Systemic Risk Board, would meet Sunday afternoon to discuss the situation. The board is a seven-member body that includes the finance minister, the central bank governor and the heads of the Greek banks association, the capital markets commission and the financial stability fund.

Greek Finance Minister Yanis Varoufakis tweeted that the government "opposes the very concept" of capital controls within a monetary union. He also suggested his country might not pay the money it owes to the IMF on Tuesday.

Varoufakis refused to reply to a direct question on the IMF payment. Instead, he told BBC radio that the ECB should pay the money to the IMF out of the profits it made on Greek bonds in 2014, an idea he called "a very sensible transfer."

"We are owed money by one part of the troika and we owe money to another part of the troika? Why don't they sort themselves out and transfer money from one pocket ... to the other?" Varoufakis said.

On the streets of Athens, reactions to Tsipras' referendum call were mixed.

"I have no idea what we are voting for. Yes or no, we don't know what to say," said 67-year-old Triandafila Bourbourda as she walked in the capital's main Syntagma Square. "I think we shouldn't have gone so far to get in to this mess."

But Voula Lambrou, attending a Sunday morning church service, said she believed Greece would be better off outside the 28-nation EU.

"If we exit the European Union, I believe things will be very good for Greece," she said. "It will be tough for some time, but we will be able to find strength in order to carry on ahead. We don't need the Europeans."

Two opinion polls published Sunday indicated that more Greeks want to stay in the eurozone and make a deal with creditors than want a rupture with the country's European partners. Both polls were conducted before Tsipras' referendum call, but they provide an indication of public sentiment.

In the poll by Alco for the Proto Thema paper, 57 percent said they believed Greece should make a deal while 29 percent wanted a rupture of ties. A Kapa Research poll for To Vima newspaper found that 47.2 percent would vote in favor of a new, painful agreement with Greece's creditors, compared to 33 percent who would vote no and 18.4 percent undecided.

Both polls were conducted from June 24-26 and had a margin of error of about 3.1 percent.

Earlier Sunday, Alternate Greek Finance Minister Nadia Valavani urged Greeks themselves to show restraint, telling private Mega television the country's banks could see "business as usual" next week if they receive the emergency support "so long as there is calm" and Greeks don't attempt to withdraw all their savings.

The European Central Bank has said it can only continue liquidity assistance if the banks are solvent. A failure by the Greek government to get more aid could lead to a determination that the Greek banks are no longer financially solid.

Draghi, the ECB chief, has said it's up to Greece's elected officials to decide their country's fate.