The European Central Bank increased its emergency funding to Greek banks as deposit flight threatened to collapse the financial system and the Athens government remained at odds with its European creditors over the terms of its bailout agreement.
The ECB provided funding through it Emergency Liquidity Assistance (ELA) program for the second time this week as withdrawals reached 1.2 billion euros on Friday. Without the ELA cash is unlikely Greeks banks could remain open.
Greek depositors’ confidence in the financial system has been declining for months and bank withdrawals have been steadily rising this year as depositors fear capital controls or confiscation of deposits.
The left-wing Syriza government of Prime Minister Alexis Tsipras was elected in January to end the European imposed austerity and has been enmeshed in an increasingly acrimonious dispute with its European lenders. Its creditors, the IMF, ECB and EU have refused to change the restrictions of the rescue agreements and Mr. Tsipras has not has not dropped the Greek demand for easier terms.
Prime Minister Tsipras has been asking European leaders in particular to forego further cuts in Greek pensions. Since the debt crisis began in late 2009 the Greek economy has shrunk by 25 percent and unemployment have been over 25 percent for three years.
The Europeans on their part have insisted that Greece fulfill the terms of the existing bailout agreements. Some officials have hinted that they would countenance a Greek departure from the united currency if Athens is unwilling to keep their terms of the agreements.
At immediate question is access to the remaining 7.2 billion euros from the last rescue package that the Greeks need to pay 1.54 billion euros to the IMF on June 30th.
Mr. Tsipras is scheduled meet other Eurozone leaders at an emergency meeting on Monday night in Brussels. The prior meeting on Thursday ended with no new proposals and no movement.
Although the deadline for the IMF payment is two weeks away, terms of any new financial package would have to be approved by several European legislatures, which would take time. If no deal is reached Greece would lose access to the remaining funds when the bailout program expires on June 30th.
Greek officials have said they will be unable to make the IMF payment without the rescue financing.
ECB officials did not confirm on Friday the size of the latest increase in ELA funding. On Wednesday, the ECB had raised the amount available from the program to 84.1 billion euros in total from 83 billion.
Before Friday, the ECB had been assessing the amount of ELA funding each week but the accelerating withdrawals in the past few days forced the central bank to act sooner. The ECB must approve each addition to the program.
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