The European Central Bank is in a tight spot between politicians on both sides of the Greek crisis. Greece want looser conditions for its banks in order to have more breathing space for the economy and for negotiations. German politicians would prefer a more prudent approach in order to mitigate risk and put pressure on Greece to agree to a continuation of the current austerity plan.
The ECB, which would probably prefer to focus on monetary policy (controversial by itself), has managed to walk the tight rope, but it may have now accelerated withdrawals from Greek banks: turning it from a “Bank marathon” to a “bank sprint”.
Update: Eurogroup meets on Friday on Greek request – EUR/USD slides
The move on February 4th not to accept Greek bonds as collateral served to put pressure on Greece in a measured manner, as it still allowed the Greek banks to tap the ELA.
Yesterday, the ECB extended the ELA by two more weeks but limited the expansion of credit to 3.3 billion euros, less than 5 billion that Greece asked for.
The big bomb came from the conservative German paper Frankfurter Algemeine Zeitung: they report (in German and Google Translated here)that the ECB would like Greece to set capital controls.
Capital controls means limits on withdrawals from banks, or limits on taking money out of the country.
These measures have not been taken yet. But if you have money in Greece and you hear the news, what will you do?
Naturally, fear that they will indeed be imposed and withdraw money. Merely putting it on the table could trigger bank runs.
We already know that money has been flowing out since December, and that the moves have accelerated lately. Such headlines could certainly turn it into an avalanche.
Update: the ECB says it had no discussion on Greek capital controls.
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