Greek banks, the euro and the ECB
Talk of a run on Greek deposits, and some banks being cut off from European Central Bank (ECB) support, have added a fresh twist to scary talk about Greece and the euro.
The details are complicated, and not quite as frightening as they first appear. But the big picture is scary indeed, not least for the ECB.
The numbers on how much has recently been taken out of Greek banks by depositors have been much disputed – not surprisingly, when the official figures will not be published for weeks.
Depending on who you talk to, anything from €700m ($892m; £560m) to €1.2bn was taken out of banks in the days after the election, out of total deposits of around €160bn. That total, in turn, is about a third lower than it was at the end of 2009.
At the same time, the ECB has apparently now said that it won’t directly lend to some Greek banks that it judges to be technically “insolvent”. These are banks that have holes in their balance sheets, because, thanks to the restructuring of Greek sovereign debt, they can’t now expect to get back all of the money that they lent to the government.
That sounds bad, but the banks that have lost access to direct ECB funding can almost certainly still get money from the Greek central bank, which, of course, is ultimately, getting its cash from the ECB (though unlike the more direct form of ECB liquidity support, all the risk implicit in this so-called ELA lending is, formally at least, borne by the Greeks alone).
As I say, both stories are complicated, and somewhat disputed, but, taken together, they do help to underscore two important realities.
The first is that the sheer uncertainty hanging over Greece and the lack of a proper government is greatly increasing the room for costly financial accidents.
The banks that the ECB has cut off, at least from direct ECB assistance, are due to be recapitalised any day now as part of the latest bailout. There is €48bn in the EU-IMF programme, earmarked for precisely this purpose, half of which has already been transferred to a special Greek fund. But in the current fraught situation, the Greeks can’t even sort out how to get the capital into the banks, let alone when.
The second and most important reality is that the ECB is once again exactly where it doesn’t want to be: right at the centre of events.
In the eyes of the markets (and most politicians), the central bank has the power to make or break the Euro. What the institution does not have is any desire to do this, or formal legal responsibility (I have explored some of the difficult issues for the ECB here).
The fall in Greek deposits, which are down by nearly a third since the end of 2009, is one reason why the Greek banks are now so dependent on money from the ECB. The other reason, of course, is that private lenders are not willing to lend to them any more.
One in five euros that Greek banks now lend to households or companies is propped up by the ECB. If Greece left the euro, all of that would stop and the Greek banking system would simply be unable to function.
Some see the leak about the ECB withdrawing funding from those banks as a giant blunder on a day when the president of the ECB, Mario Draghi, said in support of Greece only that the ECB had a “strong preference” for It staying in the euro.
Others think it’s all highly strategic: the ECB wanted to remind Greek voters and politicians that if they stumble out of the euro the Greek financial system, to all intents and purposes, will be finished. Not getting the next disbursement from the IMF and the EU is the least of it.
I suspect the truth is less calculated. As we have seen, this is an environment ripe for accidents and unforeseen consequences.
But it would be no surprise if the ECB were trying every trick in the book to get Greece to toe the line.
Why? Because if things continue on their current trajectory, and Greece leaves, the ECB is the only institution with even a fighting chance of seeing off a panic in countries like Portugal, and “saving” the euro.
Mario Draghi doesn’t want to be the Euro’s “saviour” because that ought to be a job for governments. But nor does he want to be the one to pull the plug.