Greece's rising risk of capital controls and ECB strengthening its stance on ELA

With reports that the deposit flights have accelerated further over the last few days, the EA Summit will also discuss the situation of the Greek financial institutions and the imposition of capital controls. 

Measures such as bank holidays, limits on withdrawals, freezing of assets, prohibition on certain payment orders, restrictions in using credit/ debit/prepaid cards, etc. are the local government's prerogatives and hence cannot be imposed by the EU.

Imposing capital controls would help preclude this situation. The ECB decided to increase the ELA on emergency on Friday, coming after a first increase on Wednesday. 

"The Greek banks can sustain further deposit flights of around €30bn at collateral haircut unchanged", says Societe Generale.

Even assuming that the ECB increases the size of the ELA funding accordingly, the Greek banks would reach the limit before mid-July if the recent deposit outflows trend continues. In the coming days, the ECB may eventually refrain from increasing the ELA size further in order to force the government into accepting capital controls.