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1 Jul 2015
Will the ECB extend ELA to Greece? - ANZ
FXStreet (Bali) - Philip Borkin, Senior Economist and Sam Tuck, Senior FX Strategist, both representing ANZ, share their thoughts on Greece, noting that after the country's technical default to the IMF on June 30th, the question now is what response the ECB takes to the missed payment with respect to the provision of ELA.
Key Quotes
"With the deadline almost past, it is apparent that Greece will fail to make the EUR1.6bn repayment due to the IMF, seeing it join Zimbabwe, Sudan and Somalia as the only other countries currently in arrears to the IMF. But that is not really the issue now. The bigger question is what response the ECB takes to the missed payment with respect to the provision of Emergency Liquidity Assistance (ELA)."
"If the ECB were to apply deeper haircuts to the Greek emergency funding, that would intensify the difficulties facing the Greek banking and financial sector and necessitate prolonged capital controls – although with Greek banks closed for the week, the ECB has some time before needing to make a decision. Overnight, there were some last minute attempts by Greece to reach a deal (perhaps a sign that domestic pressures are beginning to mount) with it proposing to its creditors a two year extension to the bailout program."
"However, further negotiations appear to have been ruled out for now - in particular by the Germans. While it is apparent that there are some diplomatic initiatives going on in the background conflicting policymaker comments and news headlines abound. Greece officials continue to couch the upcoming referendum as one on austerity, while some other leaders continue to state this is about Greece choosing to stay or exit the euro."
"Markets continue to jump on these headlines and comments, although to a lesser and lesser extent perhaps as a bit of Greece lethargy sets in. But unfortunately for markets, and even following this Sunday’s referendum, there may still be more questions than answers and so this heightened level of uncertainty could be part of the market backdrop for a while yet."
Key Quotes
"With the deadline almost past, it is apparent that Greece will fail to make the EUR1.6bn repayment due to the IMF, seeing it join Zimbabwe, Sudan and Somalia as the only other countries currently in arrears to the IMF. But that is not really the issue now. The bigger question is what response the ECB takes to the missed payment with respect to the provision of Emergency Liquidity Assistance (ELA)."
"If the ECB were to apply deeper haircuts to the Greek emergency funding, that would intensify the difficulties facing the Greek banking and financial sector and necessitate prolonged capital controls – although with Greek banks closed for the week, the ECB has some time before needing to make a decision. Overnight, there were some last minute attempts by Greece to reach a deal (perhaps a sign that domestic pressures are beginning to mount) with it proposing to its creditors a two year extension to the bailout program."
"However, further negotiations appear to have been ruled out for now - in particular by the Germans. While it is apparent that there are some diplomatic initiatives going on in the background conflicting policymaker comments and news headlines abound. Greece officials continue to couch the upcoming referendum as one on austerity, while some other leaders continue to state this is about Greece choosing to stay or exit the euro."
"Markets continue to jump on these headlines and comments, although to a lesser and lesser extent perhaps as a bit of Greece lethargy sets in. But unfortunately for markets, and even following this Sunday’s referendum, there may still be more questions than answers and so this heightened level of uncertainty could be part of the market backdrop for a while yet."