Draghi raises ECB funding for Greece and calls for debt relief

Greece is expected to meet a key payment to the European Central Bank on Monday after the eurogroup of finance ministers approved a €7 billion bridging loan and the European Central Bank increased its emergency funding to Greek banks.

Euro zone finance ministers on a conference call on Thursday decided to back a European Commission proposal to offer a €7 billion bridging loan to Greece from the European Financial Stability Mechanism fund, despite opposition from Britain.

Placate opposition

A proposal to guarantee the contributions of non-euro countries such as Britain and the Czech Republic with euro zone funds was expected to placate opposition from London.

The eurogroup’s move was seen as an important political signal following Thursday’s vote in the Greek parliament which saw Greek MPs back a raft of austerity measures demanded by creditors in exchange for a third bailout.

Though work on technical details of the short-term loan will continue until Saturday, the new loan will be the first disbursement of cash from creditors to Greece in months.

The ECB also announced it had increased its provision of emergency funding to Greece slightly but declined to comment on when the Greek banking system might reopen. ECB president Mario Draghi said the bank had increased emergency liquidity assistance to Greek banks by €900 million over one week, responding to a request from the Bank of Greece.

Speaking at a press conference following the bank’s regular interest rate-setting meeting in Frankfurt, Mr Draghi said he was confident Greece would meet its payment on Monday.

The ECB has been keeping the Greek banking system afloat with just under €89 billion in loans. Mr Draghi said total ECB exposure to Greece now stood at €130 billion.

He also backed calls for debt relief. “Nobody has ever disputed [debt relief],” he said. “The issue is what is the best form of debt relief within our framework, within our legal institutional framework. I think we should focus on this point in the coming weeks.”

Asked about criticism of ECB actions during the Greek crisis, Mr Draghi said the biggest deposit flights had coincided with domestic political events such as January’s election and the collapse of bailout talks last month.

‘A bank run’

“So I find these observations that there wasn’t enough liquidity assistance or that there was a bank run caused by the ECB quite unwarranted, certainly unfounded,” he said, adding that the ECB’s provision of emergency liquidity was “never meant to be unlimited and unconditional”. The Greek crisis had highlighted the need for further integration within the euro zone, he said.

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

The ECB left interest rates at their record lows on Thursday, as had been expected, and reiterated its commitment to continue its quantitative easing programme until September next year.

Meanwhile, European shares reached a six-week high on the back of Wednesday’s vote in the Greek parliament which saw 228 of the 300 MPs vote with the government. Both the German and French markets gained about 1.5 per cent, reflecting investor optimism about the deal.

With Germany and Austria due to vote on a third bailout package for Greece on Saturday, Finland gave parliamentary backing to the deal on Thursday, though Finland’s finance minister repeated that there would be no haircut for Greece.

Eurogroup chairman Jeroen Dijsselbloem said earlier this week that he expected negotiations on a third Greek bailout through the ESM fund to take at least four weeks.