Greece likely to lose access to cheap ECB cash at end of bailout

Greece will probably lose access to cheap central bank money when it exits a bailout program this summer, potentially raising funding costs for its banks, two sources close to the discussion said.

Losing the funding access would also put Greece another step further from taking part in the European Central Bank's 2.55-trillion-euro bond-purchase program, leaving Europe's most indebted country out of the ECB's stimulus scheme.

Such an exit would shore up confidence in the country's finances, but it would also disqualify Greece from an ECB's exemption from its minimum credit requirements. Its “junk” rated bonds could no longer be accepted as collateral in regular funding operations.

Greek central bank chief Yannis Stournaras last week appealed for Athens to maintain the ECB waiver but a clean exit, advocated by the government, would make that impossible.

The sources said the ECB would make no exception and would revoke the waiver, as it did in the case of Cyprus in early 2016 when it made a successful exit from its own bailout.

An ECB spokesman declined to comment.

Greek banks now borrow 4.5 billion to 5 billion euros in regular ECB operations, the sources said. Losing access could force them to use Emergency Liquidity Assistance. Interest on ELA are 1.25 percent, compared with the zero percent main refinancing rate and 0.25 percent marginal lending rate.

“There is a cost, yes, but a clean exit will shore up confidence in the economy and offset some of it through better and cheaper market access,” one of the sources said.

Greek banks borrowed around 13.55 billion euros in ELA by the end of March.

The ECB has not bought Greek bonds in its 2.55-trillion-euro quantitative easing scheme, and Athens hoped it could finally take part in the program once European leaders approve debt easing measures before the end of the bailout.

Such measures could make Greek debt sustainable. But its sovereign debt is rated as “highly speculative” by all major rating agencies, leaving Athens several steps below investment grade. [Reuters]