Category Archives: Greek ELA

16/7/15: Lifting Greek ELA by Eur900mln: Tiny Step, Strong Signaling

So ECB lifted Greek banks' ELA by EUR900mln to EUR89.9 billion today for the first time since June 23rd.

This suggests that Mario Draghi and the team ECB have found a way, for now, to set aside all concerns about Greek banks solvency and extend the lifeline to Greek banks until at least the end of July. The lifeline, however is not sufficient to cover deposits withdrawals that would occur if the Greek government were to lift capital controls.

Going forward - two-three weeks time, the ECB will have to deal with two issues at the same time:

  • Increase ELA once again and do it either in small drip format (as today) - sustaining capital controls and possibly even extending these to cover corporate sector - or increase ELA by EUR5-7 billion to cover built up of demand for deposits monetisation and corporates' operational pressures; and
  • Addressing the severity of ECB haircuts on Greek banks' collateral eligible for ELA. Here, the problem is severe: even before the mess with capital controls, Greek banks held poor cushion of eligible collateral. With capital controls, this cushion is even weaker as many households and companies have stopped funding their loans. The ECB will have to lower haircuts on collateral and/or broaden collateral pool - both moves would be hard to pass as it is now publicly apparent to all that Greek banks health is deteriorating rapidly. 
So today's moves is a small positive of largely symbolic size. Much work is yet to be done...

22/6/15: Another Adrenaline Injection by Dr. ECB

Yesterday, I noted that Greece is now on a daily drip of liquidity injections by ECB via ELA ( and so here we have the latest. Per reports, ECB hiked Greek ELA today to EUR87.8 billion.

Meanwhile, there are rumours of a 'deal' being agreed, albeit only 'in principle'. Draghi is meeting Tsipras later today and we will also have an emergency summit. So a beehive of activities all over the shop.

19/6/2015: Greek ELA and ECB… What’s the Rationale?

The price of getting Greece ejected or pushed out of the euro has now risen once again as ECB added to the ELA provided to Greek banks amidst a bank run that is sapping as much as EUR800mln per day.

In basic terms, ECB is allowing lending via Eurosystem to Greek banks to fund withdrawals of deposits. Once deposits are monetised and shifted out of Greek banks, Eurosystem holds a liability, Greek depositors hold an asset and the latter cannot be seized to cover the former. ECB was very unhappy with doing the same for Ireland at the height of the crisis, resulting in a huge shift of ELA debt onto taxpayers' shoulders via Anglo ELA conversion into Government bonds.

But ECB continues to increase Greek ELA. Why? We do not know, but we can speculate. Specifically there can be only three reasons the ECB is doing this:

Reason 1: increase the cost of letting Greece go. If Greece crashes out of the euro zone, the ELA liabilities will have to be covered out of Eurosystem funds, implying - in theory - a hit on member-states central banks. In theory, I stress this bit, this means higher ELA, greater incentives to keep member states negotiating with intransigent Greece. Why am I stressing the 'in theory' bet? Because in the end, even if Greece does crash out of the euro area, ELA liabilities can be easily written off by the ECB or monetized (electronically) without any cost to the member states.

Reason 2: keep Greece within the euro area as long as possible, thus allowing the member states to hammer out some sort of an agreement. In theory, this implies that the ECB is buying time by giving cash to Greek depositors so they can run, in hope that they continue to run at a 'reasonable' rate (at, say, less than EUR2 billion per day or so). In practice, however, this is a very short-term position.

Reason 3: ECB is monetizing Greek run on the banks in hope that Greece does crash out of the euro. Here's how the scheme might work: increasing ELA for Greece weakens Greek banks and, simultaneously, strengthens the incentives for Greece to exit the euro once deposits left in the system become negligible and the economy is fully cashed-in. On such an exit, Greek residents will be holding physical euros that cannot be expropriated by the Eurosystem, and thus Greece can launch drachma at highly devalued exchange rate, while relying on a buffer of cash in euros held within the economy.

I am not going to speculate which reason holds, but I will note that all three are pretty dire.

Take your bets, ladies and gentlemen.