Well folks it’s the story that won’t go away. Just like what Einstein said about insanity: “Insanity is defined as repeating the same action only expecting a different result”. These bankers truly are insane.
It has been reported that two Greek systemic banks submitted the first requests to the Bank of Greece for cash via the emergency liquidity assistance (ELA) system on Thursday.
For the time being, Greek banks cut off from the ECB’s normal funding operations get last minute funding from Greece’s own central bank, a process known as “emergency liquidity assistance” or ELA.
But even those funds are subject to ECB governing council approval, and the ECB by law is not allowed to approve funding for insolvent banks.
As a result, a bigger than expected exodus of Greek depositors spooked by the prospect of their euros being turned into drachmas could quickly turn into a make-or-break decision for EU leaders, forcing the ECB or eurozone governments to approve additional funds without any assurances that a new government in Athens would live up to the terms of the new bailout aid.
A major blow to the system’s liquidity has come from the repeated issue of T-bills: In November the state drew 2.75 billion euros in this way, in December it secured 3.25 billion euros, and it has already tapped another 2.7 billion in January.
Local lenders had also resorted to ELA in 2011 to cope with the outflow of deposits and consecutive credit rating downgrades of the state (and the banks) that made Greek paper insufficient for the supply of liquidity by the Euro-system.
The Greek banking system could prove the weakest link in the country’s efforts to stabilise its finances until a government can be formed after new elections.
Euro-Armageddon is still coming, and it’s the result of Europe’s insane, one-size-fits-none economic policy.