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Thursday, June 25, 2015 7:59 AM

Creditors Issue "Final" Ultimatum; ECB Keeps ELA Lifeline, Bundesbank Protests

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Air of Finality?

I cannot possibly count the number of "final" offers nor count how many times the clock hit midnight only to have it move back to 11:58 PM.

Today, however, there finally appears to be an air of finality. We will see soon enough.

Ultimatum From Creditors

The Financial Times reports Creditors Issue Ultimatum to Greece

Greece’s creditors have presented Athens with a last-ditch offer for a deal to unlock €7.2bn in desperately needed rescue aid after marathon talks failed to narrow the differences between the two sides.

Bailout monitors presented their final offer — with terms much closer to those demanded from Athens earlier this month — after Greek prime minister Alexis Tsipras failed to meet an earlier deadline to come up with acceptable concessions of his own.

Arriving for the meeting, German finance minister Wolfgang Schäuble, was gloomy about the prospects for a deal. He said there had been “not much progress” and a “big difference” remained between Greece and its creditors. It was up to the Greeks to move, he warned.

“The Greeks didn’t move at all,” said one senior official of the talks on Wednesday and earlier Thursday between Mr Tsipras and the heads of the European Commission, International Monetary Fund and European Central Bank.

“The level of frustration is so high. I don’t see a deal,” the official added. “It’s looking pretty grim right now.”
ECB Keeps ELA Lifeline, Bundesbank Protests

Reuters reports ECB Holds Athens Lifeline Unchanged as Bundesbank Protests.
The European Central Bank held a crucial cash lifeline for Greece unchanged on Thursday, a person familiar with the discussion said, as the head of the Bundesbank objected to the way Greek banks are being funded.

ECB policy-setters held the limit on their emergency funding for the banks steady for the second day running, a source familiar with their talks said, having previously increased it steadily over many weeks.

Greece's central bank may not have asked for an increase, though the country's lenders have seen their reserves dwindle daily as savers spooked by the prospect of default continue to withdraw cash. It is not clear how much longer they can cope without further hikes in such funding back-up.

It comes as Bundesbank President Jens Weidmann gave his strongest criticism yet of the use of emergency credit to prop up Greece's banks. Weidmann said those banks should not continue to buy the short-term debt of their government.

"The Eurosystem must not provide bridge financing to Greece even in anticipation of later disbursements," said Weidmann, who also sits on the European Central Bank's Governing Council, which approves such funding - dubbed Emergency Liquidity Assistance (ELA) - to Greece.

"When banks without access to the markets buy debt of a sovereign which is likewise locked out of the market, taking recourse to ELA raises serious monetary financing concerns," he said at a conference in Frankfurt.

As president of the Bundesbank, Weidmann also sits on the ECB's Governing Council, which holds daily phone calls to discuss the extension of ELA. This group can restrict such funding if a two-thirds majority agrees.
What Does it Matter?

At this point it hardly matters whether the ECB keeps the ELA for another few days or not. Capital flight has been intensive for months on end. Withdrawals  have been about a billion euros a day so we are talking about another few billion euros or so, assuming of course, there really is a deadline to this ultimatum.

I suspect the ECB is still holding the lifeline so that the eurogroup finance ministers take the blame rather than the ECB.

The stalling tactics of Greece were impressive if this was the plan all along.

Mike "Mish" Shedlock

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