The FINANCIAL — The European Central Bank lifted emergency funds for Greek banks by the biggest weekly amount since February, as uncertainty over the country’s future in the eurozone is pushing nervous depositors to withdraw their savings, according to Nasdaq.
The ECB on June 10 increased the amount of money Greek banks can borrow from their own central bank to EUR83 billion ($94.1 billion) from EUR80.7 billion, according to a Greek bank official. That is the biggest increase since Feb. 18, when Athens was facing a similar deadline on its bailout deal from the eurozone and the International Monetary Fund.
At the time, the EUR245 billion rescue deal was extended by four months, but its end-of June expiration date is fast approaching with little progress on how Greece will avoid default and stay in Europe’s currency union.
The Greek official said that the move from the ECB leaves banks with some EUR3 billion to cushion further deposit outflows. The ECB declined to comment.
On June 30, Greece faces a EUR1.6 billion payment to the IMF that it won’t be able to make without a new aid transfer. But the left-wing government of Prime Minister Alexis Tsipras is still balking at some of the austerity measures demanded by creditors, arguing that more pension cuts and tax increases would further hurt the flailing economy.
That uncertainty helped spur a downgrade of Greece’s already-junk credit rating on Wednesday. Standard & Poor’s Ratings Services lowered its long-term sovereign credit rating by one notch to “CCC”–saying that Athens would likely default on its commercial debt in the next 12 months if it didn’t reach a deal with its creditors.
In a bid to spur a breakthrough, German Chancellor Angela Merkel and French President François Hollande met with Mr. Tsipras late Wednesday on the sidelines of a Brussels summit with Caribbean and Latin American leaders.
The leaders agreed to continue talks “in high intensity,” a German government spokesman said afterward, a remark echoed by Greek officials. “Europe’s political leadership realizes that a viable solution is needed that allows Greece to return to growth with social cohesion and sustainable debt,” Mr. Tsipras said after the meeting.
Weeks of negotiations and several high-level political meetings have brought the two sides closer together on some of the terms tied to the aid. But the back-and-forth over budget targets and policy overhauls makes clear that fundamental differences remain over how to prevent Greece from defaulting more than five years after its first bailout and keep it in Europe’s currency union.
On June 10, a senior Greek official said his government might accept a higher, 1% target for its primary budget surplus–a move that would match creditors’ already softened demands in an offer presented last week. A Greek proposal submitted earlier this week had still been aiming for a primary surplus–which strips out interest payments–of 0.75%.
But the official said such a move would come with conditions and gave no indication of how Greece would produce the extra savings. The country’s original bailout deal called for a primary surplus of 3% for 2015.
Another Greek official also said his country had requested a nine-month extension to the bailout program, along with funding that would keep it solvent at least until March. A similar idea had been discussed, but not agreed, between Greece and its creditors last week.
In a verdict that could further complicate the talks, Greece’s highest administrative court on Wednesday also struck down pension cuts enacted in 2012 as unconstitutional–likely raising the bar even higher for finding a deal with its creditors. Although the court ruling doesn’t force the government to reimburse retirees for income lost over the last three years, it requires it to restore pensions to their 2012 levels with immediate effect.
Such a move could add an estimated EUR1.5 billion to annual public spending. That would force Greece to find alternative spending cuts to meet its fiscal targets.
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