Greece Said to Make ECB Debt Deadline as Banks Reopen

by Eleni ChrepaPaul GordonCarolynn Look

July 20, 2015 — 2:01 AM EEST Updated on July 20, 2015 — 4:22 PM EES

Bloomberg

Greece’s government said it’s repaying 6.8 billion euros ($7.4 billion) to creditors and depositors queued at reopened banks in the first signs of stabilization after last week’s bailout deal.

The country ordered payments on Monday to the European Central Bank, the International Monetary Fund and the Greek central bank, a Greek Finance Ministry official said on condition of anonymity. The euro rose on the news.

Repaying the ECB was the deadline Greece couldn’t afford to miss because a default would probably have forced the central bank to pull support from Greek lenders, all but ensuring the exit from the currency union. While banks reopened Monday, Greek financial markets will remain closed at least through Wednesday, two officials said.

“As the realization dawned that Greece was facing a very disorderly, painful exit from the monetary union, the government stepped back from the brink,” said Ken Wattret, an economist at BNP Paribas SA in London. “The issue of repayment to the ECB was pivotal, because failure to make the payment would have had a knock-on impact on the ECB’s willingness to continue providing Emergency Liquidity Assistance to the Greek banks.”

The Stoxx Europe 600 index gained 0.5 percent to 407.78 at 2:31 p.m. Frankfurt time. The euro rose 0.2 percent to $1.0849.

Debt Relief

As Greece gets relief, steps toward a possible bailout of as much as 86 billion euros are only starting. Parliament is scheduled to vote Wednesday on a second set of prerequisites for further financial aid, and German Chancellor Angela Merkel said the repayment terms for earlier aid loans can’t be eased yet. With the International Monetary Fund and ECB President Mario Draghi urging debt relief, Merkel ruled out a cut in the nominal value of Greek debt.

Greek stock and bond markets will only reopen after the lawmakers approve the second batch of conditions for the proposed bailout by the European Stability Mechanism, the euro area’s firewall fund, two Greek officials said Monday.

The government is drafting a decree to allow selective waivers on capital controls, and the best-case scenario is for markets to reopen Thursday, one official said.

Easing a withdrawal limit of 60 euros per day, Greeks from Monday have a weekly limit of 300 euros this week, rising to 420 euros next week, National Bank of Greece Chairwoman Louka Katseli said on state television Monday. Check deposits, access to safety deposit boxes and teller-window transactions were restored, though most transfers abroad are still prohibited.

Paying Bills

That was good enough for Diana Sotiropoulou, 60, a retired restaurant owner waiting in line to pay her power bill at a bank in Varkiza, outside Athens.

“I’ll now be able to start paying bills again as I don’t have phone or Internet banking,” she said. “Before, there was no way I was going to wait in line for four days at an ATM to withdraw 240 euros to pay the bill.”

Greece’s payments Monday comprise 4.2 billion euros in maturing debt and interest to the ECB, 2.05 billion euros to the IMF, and 470 million euros to the Bank of Greece, a second finance ministry official said.

An ECB spokeswoman declined to comment on whether the Frankfurt-based central bank had received payment.

he European Union today disbursed 7.16 billion euros ($7.7 billion) to Greece so it could clear its arrears to the International Monetary Fund and meet the next payment to the European Central Bank. Most of the money -- 6.8 billion euros -- will be gone today, so only Greece’s standing with its creditors, not its financial condition, will improve. Still, the disbursement means European leaders are willing to help Greece stay afloat as it prepares to enter its third bailout amid political turmoil that may mean a new election in the fall. To give ordinary Greeks some hope of better times, the government today reopened the banks. Depositors, however, can only withdraw 420 euros a week (all at once), which isn't much of an improvement on 60 euros a day.

It may look like rainclouds are lifting a little, but financial markets remain closed and a fresh Bloomberg survey of 19 economists says the Greek economy is likely to shrink 0.7 percent this year. What's more, German Chancellor Angela Merkel still insists that any debt restructuring can only involve maturity extensions, not forgiveness, and only if Greece follows through with the austerity measures it agreed to a week ago. It’s going to be a long, hard slog unless Greece decides to give it up and leave the euro zone after more political upheaval.

— Leonid Bershidsky

Editor's note: Greece Default Watch is going on hiatus until, well, until the next near-default.