The ECB will defend the euro even if Greece quits

by Lorenzo Bini Smaghi

Financial Times
June 28, 2015

As expected the European Central Bank has decided to maintain unchanged the ceiling for the Emergency Lending Assistance to Greek banks, following the breakdown of the negotiations on the Greek adjustment program and Tsipras’ decision to call for a referendum to be held next Sunday.

The ECB had no alternatives. Increasing ELA to Greek banks would have breached the ECB’s rules of providing financing only to banks of countries that have agreed to an adjustment program. It would have raised the ECB’s exposure to the Greek central bank to unprecedented level, which would become worthless if Greece exited the euro and result in huge losses for European taxpayers.

Without additional financing, Greek banks will not be able to serve the rising demand for cash coming from Greek citizens standing in line, fearing that their savings will be severely devalued when converted into the new currency.

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