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Questions regarding the state of Greek banks and what happens if Greece misses payments to the ECB (€3.5bn is due on 20 July) are likely to be the main topic in the press conference.
While key decisions are set to come before the Governing Council meets next week, the conditions for providing ELA is likely to linger unless deposit flows are quickly reversed, the Greek economy rapidly recovers or Greek banks are recapitalized.
Overall, the ECB's room for maneuver is squeezed by its responsibility to promote financial stability through a smooth payment system and the ELA restrictions to provide this facility only to solvent banks and not increase the risk of moral hazard on the side of, financial institutions or responsible authorities, notes Societe Generale.
Should there be an agreement on Sunday 12 July, it is believed the ECB will continue to provide liquidity to the Greek banking sector via the ELA. To increase the risks for the ECB, before a possible recapitalization of Greek banks, the ECB may however require some form of guarantee against losses by euro area policymakers and the maintenance of capital controls. The third Greek bailout programme would thus likely need to include funds earmarked for recapitalizing the Greek banks.
Should there be no agreement on Sunday, the ECB will face a more difficult situation. On 8 July, the Bank of France Governor Noyer said that "Our rules oblige us to stop immediately at the point when there is no prospect of a political accord on a programme, or at the point when the Greek banking system crumbles - which would happen if it enters generalized default on all its debts".
This would likely happen on Sunday night, i.e. only when the Eurogroup and EU leaders make it clear that no solution can be found and that Grexit can no longer be avoided. Should no clarity come out of the Sunday meeting, as long as the lines of communication remain open between Greece and the EU (for instance, because there are new elections ahead), the ECB could still maintain ELA access to Greek banks but not raise the ceiling. Indeed, the consequences of shutting down its last line of financing would imply a disorderly collapse of the Greek banking sector.
Such a decision to fully suspend ELA would force the Greek government to issue a new currency almost immediately and to nationalize its banking sector, most likely implying a disorderly Grexit. Even with political backing for Grexit, the ECB would probably seek an orderly transition, by trying to unwind ELA gradually, in coordination with the Bank of Greece, says Societe Generale.
