ECB raises Greek bank funding as Europe backs new loan

Updated: 2015-07-16 23:06


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ECB raises Greek bank funding as Europe backs new loan

Demonstrators wearing the masks depicting German Finance Minister Wolfgang Schaeuble and former Greek Finance Minister Yanis Varoufakis (R) take part in a protest outside the European Central Bank headquarters in Frankfurt, Germany, July 16, 2015. The text reads 'Debt haircut now!' [Photo/Agencies]

Repayment assured

Before agreeing to raise ELA, the bank needed to ensure that Greece will have the temporary financing to repay a 3.5 billion euro plus interest payment due to the ECB on Monday.

Draghi said all evidence indicated that Greece would make that July 20 payment and clear its arrears to the International Monetary Fund.

A temporary 7 billion euro ($7.64 billion) EU loan has been agreed in principle but technical details will take until Friday to iron out, euro zone officials said.

Draghi said the ELA increase granted was fully in line with the extra liquidity requested by the Greek central bank.

Draghi said the Greek crisis had shown up the fragility of the euro zone and the need for stronger integration within the bloc.

"This union is imperfect, and being imperfect is fragile, vulnerable and doesn't deliver ... deliver all the benefits that it could if it were to be completed. The future now should see decisive steps on further integration," he said.

After the ELA increase, Greek banks are likely to open only with reduced operations and cash withdrawal limits at least until a bailout package is passed and banks receive at least some of the 25 billion euros earmarked for recapitalisation.

ELA has been held steady since late June, forcing banks to close and limiting cash withdrawals to 60 euros per day, disrupting an economy already in recession. It has shrunk by a quarter since the start of the country's troubles.

Still, a limited bank opening would create the impression of normality and allow the Greek central bank to release cash that one official said was now held in its vaults for an emergency, via the banks into the economy.

Nearly a third of economists polled by Reuters still expect Greece to eventually leave the euro and the International Monetary Fund said Athens needs far more debt relief than European governments have been willing to contemplate.

Though Germany ruled out a 'haircut' to this debt mountain within the euro zone, it said extending maturities was an option and the European Commission suggested 'very substantial re-profiling'. The IMF said Greece may need a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension.

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