The ECB has said it will keep emergency loans to Greek banks at their current level. The move increases pressure on Athens, which has said it will not lift capital controls.
The European Central Bank (ECB) on Monday added to the pressure on Greece's feeble financial state, as council members in Frankfurt decided not to raise the level of emergency credit available to the country's cash-strapped banks, while at the same time tightening access to such loans.
In a highly anticipated conference call, the 25-member Governing Council agreed to leave in place the liquidity cap at 88.6 billion euros ($98 billion).
"The Governing Council of the European Central Bank decided today to maintain the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on 26 June 2015 after discussing a proposal from the Bank of Greece," the group said in a statement.
While the ECB stopped short of pulling the plug on its emergency funding program - a move known in EU circles as the 'nuclear' option - the decision is seen as a clear warning shot to Athens that patience is running thin.
"The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in Emergency Liquidity Assistance relies to a significant extent on government-linked assets," the central bank added, explaining its decision. "ELA can only be provided against sufficient collateral," it said, referring to its legal framework barring it from lending to banks that are not solvent.
Despite the tight leash, an unnamed Greek official assured Bloomberg News that the nation's banks are able to cope with the new terms and that the ECB did not impose a hard deadline on the country.
The saga continues
Still, the move comes at a time when trust between Athens and its international lenders, including the ECB, has all but eroded, and the ELA is the only lifeline keeping Greek banks, and by extension the country's economy, afloat.
After more than five months of deadlocked debt talks, tension between the two sides reached a boiling point when it became clear that Greece would default on a June 30 debt repayment to the International Monetary Fund. It fully erupted when Greek Prime Minister Alexis Tsipras appeared to thumb his nose at his paymasters by calling a national referendum on whether to trade unpopular economic reforms for more bailout money - a proposition Greek voters resoundingly rejected on Sunday.
EU lawmakers, business leaders and economists alike warn that the Greek 'no' has kicked open the door to a fast lane out of the eurozone - a so-called 'Grexit.' While most agree that a Grexit would cause only minimal economic damage to the eurozone, it is unclear what exactly will happen in the days and weeks to come.
More uncertainty ahead
With virtually all avenues of funding cut off, the Greek government has ordered the country's banks to stay shut and extended tight restrictions on daily cash withdrawals to keep the economy from collapsing altogether.
"Until Wednesday evening we continue as things stand today," Louka Katseli, chairwoman of the National Bank of Greece, said following the ECB's decision. That's when the Council is expected to review its decision, and a day after an emergency summit of eurozone leaders in Brussels.
For now, the ECB said on Monday, it is "closely monitoring the situation in financial markets" and any impact on "the balance of risks to price stability in the euro area."
Still, analysts predict the ECB will not want to be the one to push Greece over the edge and out of the single currency.
pad/jr (AP, AFP, Reuters)