The European Central Bank kept its cash line to the Greek financial system intact but unchanged today insuring that Greek banks will not be able to open as negotiations continue against a Sunday deadline for a third bailout for the country.
At its weekly review of the Emergency Liquidity Assistance (ELA) program the central bank's governors maintained its 88.6 billion euros ($98.1 billion) commitment to the Greek banks, as it has since June 23rd. On Monday it raised the discount on the collateral posted by the banks with the ECB, though it did not disclose the amount of the increase.
Greeks banks have been closed since capital controls were imposed last Monday. The banks have limited ATM withdrawals to 60 euros a day because their cash reserves are almost depleted. They will not be able to reopen until Greece's request for a new three year rescue package is approved by its European lenders.
Without a functioning financial system, the Greek economy is beginning to suffer from shortage of goods and services as firms cannot order from overseas or pay their employees because of the scarcity of cash.
The ECB plans to review the ELA program again on Monday.
If there is no agreement on a new rescue package by then the ECB could take the momentous step of removing in whole or part its liquidity support by demanding repayment of its loans.
The Greek banks are insolvent with no cash to disburse, they cannot repay the ELA loans. The government has an inadequate amount to pay itsown bills, salaries and pensions.
Without aid Greece could be forced to issue a parallel script, a Greek euro or drachma, just to survive. Whether acknowledged by the Europeans or not that would be the effective exit of Greece from the euro
Chief Market Strategist
WorldWideMarkets Online Trading