New Greek PM greeted by fear over ECB funds
A CHANGE to the liquidity support offered to Greek banks by Brussels prompted more worries over the future of the Eurozone yesterday, while the troubled Mediterranean state announced that its emergency government would be headed up by a judge until fresh elections on 17 June.
Greek President Karolos Papoulias named council of state head Panagiotis Pikrammenos as caretaker prime minister. It is feared that he will be replaced by a far-left anti-bailout leader next month, with polls showing that pro-bailout parties are increasingly set for a hammering.
Investor concerns over the likelihood of Greece crashing out of the single currency areas are escalating the political turmoil.
And markets were spooked further yesterday by reports that the ECB was switching Greek banks from one liquidity scheme to another, mistaking the move for the cutting-off of funds to the country’s lenders.
The confusion arose because the banks have run out of collateral that is eligible for the Bank’s normal liquidity provision, forcing them to switch to the Emergency Liquidity Assistance programme (ELA), until the Eurozone bank bailout capital that was agreed in March arrives. The ELA has lower standards for collateral but requires more of it in return for funds.
Once the €48bn in capital, which takes the form of bonds issued by the European Financial Stability Facility, is handed over to the banks, they will switch back to the ECB’s normal liquidity scheme.
However, the incident highlighted the fragility of the Greek banking system and their heavy reliance on help from Frankfurt.
The euro traded near break-even and banks dragged down Europe’s top shares to close lower in choppy trade on worries over the stability of the Eurozone.
“People are waiting to see what will happen with Europe; the line in the sand for taking some kind of action is getting closer,” said Reed Choate, of Neville, Rodie & Shaw in New York.
Choate said efforts by German Chancellor Angela Merkel and new French President Francois Hollande to quell talk of a possible Greek exit from the euro were positive, but the reported withdrawal of ECB funding still weighed on markets.