The European Central Bank (ECB) on Friday extended its lifeline to Greece’s financial system after efforts failed on Thursday to broker a deal on the country’s bailout.
It was the second time this week that ECB officials had conferred over Greece. The central bank has effectively kept Greek lenders on life support with billions of euros in emergency funding as anxious depositors accelerated their withdrawals.
European Commission Vice President Valdis Dombrovskis said at a news conference in Luxembourg that the central bank had provided extra emergency funding on Friday, and he urged the Greek government to push forward with policy changes to quell the crisis.
The decision by the ECB was “basically to cover this urgent financing issue,” Dombrovskis said, after the second of two days of meetings of EU finance ministers. “But it’s very clear that to regain financial stability, a clear agreement is needed on the program, and a credible strategy needs to be presented by the Greek authorities.”
On Thursday evening in Luxembourg, a smaller group of eurozone finance ministers was unable to negotiate a deal in the long-running crisis. The stalemate has heightened fears that Greece will default on a large loan repayment on June 30 and that it is on the brink of a destabilizing exit from the currency bloc.
Immediately after the talks ended on Thursday, an emergency summit meeting of 19 eurozone leaders was scheduled for tomorrow.
In part, the meeting was called to ease fears about the stability of the Greek banking system in the coming days, said one person with knowledge of the matter, who spoke on the condition of anonymity.
Concerns about the Greek banking system have been sharpened by the steep outflow in recent months of deposits in the face of growing fears about the country’s ability to remain in the eurozone.
Analysts and bankers said they believed that about an additional 3 billion euros (US$3.4 billion) was withdrawn from the banks this week. According to the latest figures from the Greek central bank, Greek bank deposits fell in April to 133 billion euros, the lowest level in a decade. More than 30 billion euros was withdrawn between the end of November last year and the end of April.
On Friday, the ECB decided to increase emergency funding by about 2 billion euros, according to people with knowledge of the figures. Outflows from deposits totaled 1.2 billion euros to 1.5 billion euros on Friday, the people said.
The mood in Athens appeared relatively calm, and bank withdrawals did not appear to have escalated into a full-out run. After reports that the ECB would increase the funding, stocks in Athens rose nearly 2 percent in afternoon trading and financial shares climbed about 3 percent.
The market might have been bolstered on Friday by a statement from the office of Greek Prime Minister Alexis Tsipras, which welcomed the decision to hold a summit meeting of eurozone leaders, describing it as “a positive development on the road toward a deal.”
“There will be a solution based on respect for European Union laws and democracy that will allow Greece to return to growth within the euro,” the statement said.
Greece’s creditors — the other eurozone countries, the IMF and the ECB — have committed to 240 billion euros in bailout loans over the last five years. The European portion of the bailout ends on June 30, and the two sides have been far apart on what steps Greece must take to overhaul its pension, tax and budgeting systems to win continued support from Europe.
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