The immediate veto to Greek membership in the euro belongs to the Europe Central Bank. Mario Draghi again stayed its hand today as Athens continued its debt battle with its European partners.
The ECB's governing council raised the cap on its liquidity lifeline to Greek banks by 1.1 billion euros ($1.2 billion) to 80 billion euros keeping the Greek banking system solvent as massive withdrawals continue to deplete its capital base.
Without this liquidity support the Greek banks would quickly be unable to meet their daily cash commitments, forcing either their closure or funding by other means, the most obvious being the adoption of a new currency.
Yesterday's meeting with the Euro Group finance ministers produced no agreement or substantive concessions from either side but the negotiators did issued a statement recognizing Greece’s supposed new willingness to meet required conditions for the release of more bailout cash. Such "progress" was required by the ECB in order for the liquidity provision to be maintained.
The atmosphere in talks has improved,” German Finance Minister Wolfgang Schaeuble told reporters Tuesday as reported by Bloomberg. “There’s not a whole lot new in substance.”
Athens made a 750 million euro payment to the IMF today by drawing 650 million euros from its reserve balance on deposit at the IMF, essentially paying the IMF with its own cash. These balances have to be replaced within 30 days according to IMF regulation.
Greece has also ordered local and municipal governments and public entities to move their cash to the Bank of Greece for use in the central government's short term funding needs.
Amid the uncertainty, the Greek financial system continued the hemorrhage deposits. Net outflows from Greek banks accelerated in April to about 7 billion euros, the most prominent destinations being banks in other members of the EMU. In March, the banking system’s deposits fell to their lowest level since January 2005.
The euro was a largely unchanged despite the Greek developments, changing hands at 1.1230 in mid-afternoon in New York, toward the upper end of its 1.1133-1.1280 daily range.
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