ECB running out of reasons to maintain ELA funding

Greek banks are supposed to open on Tuesday. After the 'No' vote, Greeks banks will likely remain closed for a longer period and capital controls and cash withdrawals will probably be tightened, less than €60 per day and per person. The ECB might only suspend ELA with the implicit backing of EU leaders, i.e. only when the Eurogroup and EU leaders make it clear that no solution can be found and that Grexit could no longer be avoided. 

As long as the line of communication remains open between Greece and the EU, the ECB is expected to maintain ELA access to Greek banks. Indeed, the consequences of shutting down its last line of financing would be a collapse of the Greek banking sector. 

Suspending ELA would force the Greek government to issue a new currency almost immediately and to nationalise its banking sector. This would be a disorderly Grexit.


ECB might sooner or later decide to issue a statement similar to that of Cyprus in 2013, the statement issued on 21 March 2013 specified that if a programme was not in place by 25 March, the ELA would no longer be available. Due to this statement, the long discussion ended with a political agreement on 25 March. The ECB first maintained access to ELA and on 2 May 2013 decided to accept the Cypriot government's securities for standard monetary operations.


Instead of a full programme, the ECB may require Greece to request a programme for the recapitalisation of it(s) bank(s): a specific procedure exists for the transitional period until 31December 2015 before the start of the Single Resolution Mechanism (SRM) and the Single Resolution Fund (SRF): a bail-in equal to 8% of total liabilities will be applied before directrecapitalisation by the ESM2.

This would represent €31bn, with the bulk in time deposits. A bail-in and/or a bank default would most likely be problematic. Such a statement would save time and also set the agenda for policymakers, says Societe Generale.