Greek default might not be that far away.
As yields on Greek bonds skyrocket and questions about collateral threaten to undermine the bailout, Greece’s central bank has quietly activated the Emergency Liquidity Assistance (ELA) program to help banks struggling to stay afloat, according to Greek newspaper Imerisia (via Reuters).
The ELA is supposed to provide cash in “exceptional circumstances and on a case-by-case basis to temporarily illiquid institutions and markets,” according to the European Central Bank’s definition. Although the ECB has to approve such transactions, it allows the Greek central bank to provide funds even after interbank and ECB outlets are closed.
Everyone knew that Greek banks were not in good shape right now, but just how close are they to dragging the country over the edge?
Too close for comfort, particularly with all the collateral drama going on right now. BTIG estimates that Greece will need $144 billion to meet its goals and obligations in 2011. The July 21 bailout agreement will include roughly $157 billion in financing if implemented.
Squabbling over collateral has escalated since last week, when Finland and Greece secured a bilateral agreement. “It seems that a possible outcome is either collateral for all member states or no country will get it,” a source close to the negotiations was quoted as saying in WSJ.
But if collateral agreements were negotiated for the eurozone as a whole — and say 10% of the aid package will be set aside for collateral agreements — the aid package would provide less funding than Greece needs to stay afloat.
It is likely that the bailout will not be held precisely to the numbers published in July — and that the EFSF could provide extra funding if approved — but this would nonetheless be a tight numerical battle, particularly if the $636 billion in the EFSF are also being doled out to Italy and Spain.
Little wonder that Greek bonds yields are soaring to record levels again.