It was probably this
By Mehreen Khan
4:20PM BST 21 Apr 2015
European Central Bank draws up plans to limit emergency assistance as Alexis Tsipras gears up to meet Chancellor Merkel
Shares in Greece's stricken banks have fallen to an all-time low reports suggested the European Central Bank was considering pulling the plug on the country's lenders.
A memo drawn up by the ECB's staff proposed capping the emergency assistance (ELA) that has been keeping lenders alive since the Syriza-led government entered office at the end of January.
Stocks in the country's biggest four lenders fell by 4pc this morning on the news.
ELA has been drip fed to the country's banks as the Leftist government in Athens has struggled to meet the bail-out conditions demanded from its international creditors.
The assistance is provisional on Greek banks remaining solvent, but capital flight has seen banks hit the ceiling on the funds on an almost weekly basis.
With the clock ticking on Greece's future in the eurozone, Greek prime minister Alexis Tsipras is due to meet with Chancellor Angela Merkel on Thursday. The pair last met during an official visit to Berlin by the Greek premier earlier this month. It is thought that the Leftist government sees Ms Merkel as their best hope for reaching an agreement before a series of crunch repayments to the IMF are due at the beginning of May.
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The ECB's report, seen by Bloomberg, also suggested increasing the haircut Greece's private banks take when posting collateral with the central bank in Athens.
Central bank president Mario Draghi has insisted banks continued to be eligible for ELA, which has reached around €74bn. However, other members of the Governing Council have suggested the liquidity assistance should not continue after the summer. Any decision to remove the life-support would require a two-thirds majority among the bank's governing board.
Should the ECB pull the plug, Greek banks will go bust in a matter of months, said rating's agency Standard & Poor's.
"In the absence of support from the European authorities, we believe that a default of these Greek banks appears inevitable within the next six months," said S&P.
ECB vice president Vitor Constancio said capital controls could also be an option should the Greek government request them.
Continued reliance on emergency funding has seen Greece's Eurosystem liabilities top €110bn over the last few months. These Target2 liabilities at the European Central Bank raise the cost of a Grexit for the rest of the eurozone, including Germany, the bloc's biggest lender.
Greece's liquidity strain has become so desperate the government has issued an emergency decree forcing all local government bodies to transfer their cash reserves to the Bank of Greece.
But in a move which is likely to cause consternation in Athens, it was revealed that the Brussels Group of lenders had urged the government to confiscate the funds if they wanted to continue paying out public sector wages and pensions in May. The cash transfer will add an estimated €1.2-€2bn to the government's coffers.
"I expect that this will simply hasten the outflow of funds from Greek banks and the collapse of the banking system." said Marshall Gittler of IronFX.
Greece's precarious future in the eurozone has also raised alarm in Washington. The White House's chief economic adviser Jason Furman said a Grexit would take "a very large and unnecessary risk with the global economy just when a lot of things are starting to go right”.
A former director of market operations for the ECB, Francesco Papadia also said "mutual trust has disappeared" between the two sides.
But in a development which is likely to antagonise the creditor powers, Alexis Tsipras has been looking to strike a deal with Russia over financial aid and discounted gas. The head of Russia's state-backed Gazprom was in Athens today, ahead of reports the Kremlin is poised to provide a €5.4bn sweetener to the Leftist government for a planned gas pipeline running through the country.
Should any deal be signed today, this would see "Greek government coffers eventually bolstered by a clandestine windfall," said Robert Kuenzel of Daiwa Capital Markets.
Investor sentiment across the continent has also taken a hit on the back of Athens' woes. A measure of economic confidence in Germany, the ZEW index, fell for the first time since October this month, as the Greek crisis shows no signs of abating.
The head of France's central bank warned on Monday that Greek banks stood on the brink of bankruptcy and would eventually run out of collateral to continue receiving ELA.
"It is therefore urgent that Greece put an end to the current situation and that Athens should establish a programme with the IMF and the backing of other eurozone countries in order to reestablish confidence," said Christian Noyer.
