ECB raises Greece emergency credit

ECB President Mario Draghi announced at a news conference in Frankfurt on Thursday that conditions had been restored for more Emergency Liquidity Assistance (ELA) to Greece's banks after a bailout plan was agreed between Athens and the eurozone.

"Things have changed now. We had a series of news with the approval of the bridge financing package, with the votes, various votes in various parliaments, which have now restored the conditions for a raise in ELA," he said.

Meanwhile in Brussels, eurozone finance ministers agreed to launch formal bailout talks with Greece. In a statement, the 19 ministers said they "welcome the adoption by the Greek parliament of all the commitments specified in the Euro summit statement from 12 July."

Thursday's decision by the Eurogroup finance ministers to unlock 7 billion euros ($7.6 billion) in bridge loans will enable the Greek government to meet upcoming payments and avoid having to formally go bankrupt. The consequent improvement in the quality of Greek banks' collateral - which mostly takes the form of Greek government bonds - enabled the ECB to release extra funds to Greek banks under ELA, Draghi said.

The ECB's ELA increase will provide 900 million euros of extra funds to Greek banks, calibrated for one week's cash needs, Draghi said. The ECB would continue to monitor the situation as it evolves, and provide more funding when the evolving situation justified it, he added.

Debt relief 'necessary'

Debt relief for Greece "is necessary - I think no one has ever questioned that. The question is what the best form of the debt relief should take within our legal framework," Draghi said in answer to a journalist's question.

Draghi also said "all my information" indicates that Greece would repay the ECB the 3.5 billion euros on maturing bonds coming due July 20, as well as repaying the 1.2 billion euros in debt arrears it owes the IMF from a missed payment on June 30 - so those threats to Greece's formal solvency would soon be "off the table".

ECB interest rates unchanged

Earlier on Thursday the ECB governing council had decided at its regular monetary policy meeting to hold its key interest rates steady, a spokesman said. The benchmark "refi" refinancing rate will stay at its current all-time low of 0.05 percent. The other key rates -- on the marginal lending facility and the deposit facility -- were also left unchanged at 0.30 percent and minus 0.20 percent respectively.

The ECB's decision to make no changes in monetary policy this week was in line with the expectations of analysts, given the principal focus of the ECB this week on the question of how to deal with the Greek government and banking system's interlinked liquidity and solvency issues.

nz/ng (ECB website, Reuters, AFP)