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Image: picture-alliance/dpa/F. Gambarini

ELA loans explained

Zhang Danhong / cjc
June 28, 2015

How was Greek Prime Minister Alexis Tsipras able to keep his country’s banks liquid even as the standoff over Greek debt wore on? DW takes a look at the ECB loans known as Emergency Liquidity Assistance.


Mid-February, the European Central Bank shut off the tap for the Greek banking sector. It did so by explaining that Greek bonds would no longer be accepted as collateral for loans. The action was in fact a reaction to the Syriza government avoiding prior arrangements that Athens had come to with its lenders.

The ECB, however, has not left Greece's banks completely out to dry. The central bank has provided ample emergency assistance loans since February. At first it was increasing the scope of the so-called Emergency Liquidity Assistance (ELA) loans on a weekly basis, recently it has been doing so almost daily. Thus far, some 90 billion euros in loans have flowed.

These ELA loans represent a line of credit for countries in the euro system. With it, the ECB allows national central banks to throw on the printing press to keep banks in their own countries liquid.

A high price

ELA loans come at a higher price than regular loans. Interest for these loans for Greek banks is currently at 1.55 percent, according to a Commerzbank analysis. Banks that borrow directly from the ECB have to pay a mere 0.05 percent interest, a pittance in comparison.

People queue outside ATMs in Greece
Worried Greeks queue to withdraw cash from ATMsImage: Reuters/S. Rapanis

Many analysts, however, cannot be 100 percent certain about the conditions of ELA loans because the process is not entirely transparent. National central banks are not required to disclose the exact interest rate or volume of such loans they have received. It's enough if they book ELA loans under "other accounts receivable."

This has led to a situation in which other countries have traditionally helped themselves to such instruments. Ireland, for instance, gave its banks an estimated 50 billion euros in ELA loans in 2011 and 2012, thus becoming far more than just a short-term funding solution for its ailing financial institutions. This also wasn't the first time that Greece has tapped ELA. As the euro crisis was peaking in 2012, Athens had accumulated around 100 billion euros worth of ELA loans.

Borrow at your own risk

According to ECB statues, national central banks borrow money at their own risk. But if Greece were to exit the eurozone, the burden of these loans would fall to other countries in the euro area. The longer Athens draws out its negotiations with its creditors and the more ELA loans it receives, the greater the potential losses are for its European neighbors.

ELA loans don't just fill the gaps in funding that have resulted from capital flight. Athens also uses them to pay back money it owes its other creditors. The Greek state has been using ELA to protect itself from default, making the ELA an indirect form of financing national governments - something the ECB's mandate forbids it from doing.

No uncertain terms

The president of Germany's central bank, the Bundesbank, Jens Weidmann, has said in no uncertain terms that he views ELA loans to Greece as being tantamount to illegally funding the government in Athens.

The president of the Munich-based Ifo institute, Hans-Werner Sinn, has similarly accused the ECB of undermining competitiveness in the euro area, because without the ELA loans Greece's banks would have gone broke long ago. That would be criminal in the private economy, but the ECB is allowed to do it, Sinn said in an interview with DW.

Technically, ELA loans are only supposed to go to solvent banks and be restricted to a limited period of time. Where Greece is concerned, all of these rules have been bent to the point of breaking. But so far there has not been the necessary two-thirds majority in the ECB's governing council that prevent any more ELA loans to flow to Athens. The certain collapse of Greece's banking sector and a possible Grexit is not something the ECB's governors want to happen on their watch.

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