European Central Bank agrees to increase support to Greek banks, first step to let them reopen

FRANKFURT – European Central Bank head Mario Draghi delivered financial and moral support for embattled Greece on Thursday, saying that emergency credit to Greek banks will be increased — a first step toward helping them reopen.

Greek banks have been closed since June 29, more than two weeks ago, since the ECB’s governing council halted the credit flow due to concerns the banks would go broke and not pay the money back.

In a news conference following the ECB’s regular policy meeting, Draghi said the ECB agreed on Thursday to increase that credit amount by 900 million euros over one week. That raised the total to about 90 billion euros.

The decision came after the Greek parliament approved a bill of budget savings and economic reforms that the eurozone countries said was required to start talks on a new bailout program worth about 85 billion euros ($86 billion) over three years.

It was unclear when the Greek banks might reopen or when the country might be able to lift or ease limits on cash withdrawals and money transfers. ATM withdrawals have been limited to 60 euros per person per day. Normal commerce is impossible as suppliers demand businesses pay cash they don’t have.

Draghi offered more support by saying that debt relief of some sort for Greece was “uncontroversial” and that the ECB “continues to act on the assumption that Greece is and will remain a member of the eurozone.”

German Finance Minister Wolfgang Schaeuble has mentioned a possible temporary exit from the euro for Greece to sort out its problems. Draghi said that he was “not going to comment on politician’s statements.”

European officials have said Greece could get more time to pay and lower interest on its debt, although Schaeuble and others have ruled out actual reductions in the face value of the debt.

Carsten Brzeski, analyst for financial group ING-DiBa, said that more complex steps and negotiations would follow, but that the ECB’s decision to increase emergency credit is “no game changer, yet, but at least a symbolic leap of faith.”

Draghi also re-stated that the ECB is willing to use all the stimulus measures at its disposal to prevent market turmoil from destabilizing the economy of the 19 eurozone countries. Greece is less than two per cent of the economy of the eurozone, but earlier phases of the six-year-old Greek crisis created financial turbulence for other indebted countries.

One reason markets have been relatively calm is the ECB’s 1.1 trillion euro ($1.2 trillion) monetary stimulus. The ECB has been buying 60 billion euros a month in government and corporate bonds. The effect is to push newly created money into the financial system. That steadies bond markets and is also intended to raise inflation that is considered too low at 0.2 per cent annually.

Earlier, the ECB also decided to leave its benchmark interest rate at a record low of 0.05 per cent. The decision was a formality because the bank has said the rate cannot go any lower.