ECB to consider suspending emergency liquidity assistance to Greek banks
The ECB is considering a suspension of emergency liquidity assistance (ELA) to the Greek banks given that the country's banking deposit outflows have accelerated since the beginning of June, as relations between the Greek authorities and institutions continues to worsen.
Read more: Greece wants debt relief as bank deposits plunge
The European Central Bank (ECB) will hold a telephone conference call to discuss extending the ELA, Reuters reported on Friday citing two officials present at the Eurogroup meeting.
Earlier, the Euro area finance ministers failed to reach an agreement with Greece in the meeting held in Luxembourg on Thursday.
Read more: Eurogroup fails to reach agreement with Greece
An extraordinary meeting has been scheduled for 22 June in order to try to reach an agreement with Athens before 30 June if it wants to avoid facing a default on payments of €1.6bn due to the IMF.
Deutsche Bank analysts believe that if a deal not reached by then, it may be possible that an agreement is reached at a political level, but added that there would not be much time for the the necessary parliamentary approval processes to complete allowing Greek fund disbursement to take place.
“In this instance it is possible that the ECB maintains financing, provided there is a credible prospect of Greek parliamentary approval.”
OANDA's Senior market analyst Craig Erlam thinks that if nothing changes this weekend, it would be very unlikely to see progress in talks on Monday's summit.
“It will be very interesting to see whether the jitters kick in as we progress through the (Friday) session and investors begin to become more risk averse ahead of such an uncertain weekend.”
Barclays analysts pointed out that if no progress is made before the end of the month, they would expect that from July the ECB would increase the haircut sufficiently to force Greek authorities to impose capital controls in order to avoid meltdown in the Greek banking system.
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