Greece Buys Time From ECB as Tsipras Says Country Will Prevail

Greece secured a few more days of financial breathing space from the European Central Bank, as Prime Minister Alexis Tsipras said on a visit to Russia that his country can survive its current crisis.

The ECB increased the cap on Greece’s Emergency Liquidity Assistance on Friday for the second time in three days, and will review funding again on Monday.

European finance ministers will reconvene the same day before a summit of leaders that could determine the future of the euro zone and Greece’s place in it.

“We are in the midst of great turbulence,” Tsipras said in a speech in St. Petersburg, where he met with Russian President Vladimir Putin for the second time in three months.

 “But we are a nation of seafarers, who know how to deal with storms, and aren’t afraid to sail to distant oceans, to uncharted waters, in search of a safe harbor.”

While discussions, deadlines and apparent denouements have come and gone during almost five months of brinkmanship, the wrangling over a deal to keep Greece afloat is at the sharp end.

A bailout agreement expires on June 30, the day Greece is due to make a payment to the International Monetary Fund.

“We need to get rid of any illusions that there will be a magic solution at the leaders’ level,” European Union President Donald Tusk said on Friday.

 “We are close to the point where the Greek government will have to choose between accepting what I believe is a good offer of continued support or to head towards default.”

 Greek Banking System

The ECB has previously reviewed Greek ELA weekly and is stepping up the frequency as the financial crisis deepens.

The decision “suggests that the Greek banking system will receive whatever support is needed to allow the political process to work through to the end of the EU leaders’ summit,” said David Mackie, an analyst at JPMorgan Chase Bank in London.

“Unless Greece reaches a deal by the end of Monday, capital controls look likely to be needed next week, as Greek banks reach the limit in terms of collateral availability.”

The Athens Stock Exchange index reversed earlier losses, closing 0.6 percent higher. It fell 11.3 percent this week.The yield on Greece’s two-year bonds declined eight basis points to 28.58 percent.

Higher Level

Earlier, Tsipras insisted a deal can be done on Monday now negotiations have moved to a higher level.The European Union should return to its founding principles of “solidarity, democracy and social justice,” he said in St. Petersburg.

“But the obsession with austerity and policies which rupture social cohesion make it impossible.”Talks among finance ministers broke down in Luxembourg yesterday amid frustration.

Greece and its creditors -- the ECB, the IMF, and the European Commission -- seemed further apart than ever after four hours of closed-door talks.

“The Greek premier overplayed his hand, believing that Greece is systemic and therefore creditors would accept his demands for fear of contagion,” said Miranda Xafa, a former Greek representative to the IMF who now runs a consultancy in Athens.

Deposit Flight

Amid the uncertainty, deposit withdrawals from Greek banks have exceeded 4 billion euros in June, with the pace of outflows accelerating this week, a person familiar with the matter said.

About 1.85 billion euros was withdrawn in the last two days alone, the person said, asking not to be named, as he wasn’t authorized to speak publicly on the matter.

Thousands of people assembled outside the Greek Parliament in Athens last night asking for the nation to be saved after the government blamed a conspiracy to blackmail Greece for the continued standoff between Greece and its creditors.

Adults in Room

 “The key emergency is to secure a dialog with adults in the room,” IMF Managing Director Christine Lagarde said after listening to Greek Finance Minister Yanis Varoufakis expound in Luxembourg on Thursday. “What we lack is a dialog.”

While Greece has a little less than two weeks left before the bailout window shuts, the need for some parliaments to sign off on any agreement means it’s already too late for them to access aid in time to pay the IMF about 1.5 billion euros ($1.7 billion) at the end of the month, according to Jeroen Dijsselbloem, who leads the group of euro-area finance ministers.

“Let’s say that we do reach an agreement; it’s unthinkable that the implementation and then disbursement will also have to take place before the end of the month,” Dijsselbloem said.

 “That is simply impossible.” To get at least some money, Greece will now look to extract an extension of its bailout agreement at a June 22 summit that will put Tsipras and Germany’s Angela Merkel, who has tried to smooth out tensions, in the same room.

The EU meeting is scheduled to start at 7 p.m. in Brussels. The problem is, as the Maltese Finance Minister Edward Scicluna put it, that nobody “wants to pull the plug.”

bloomberg.com