ECB Coene:No Emergency Liquidity For Insolvent Greek Banks:FT
FRANKFURT (MNI) – The European Central Bank would not rescue the
Greek banking system by authorizing emergency liquidity assistance (ELA)
if Greece’s banks were to become insolvent, ECB Governing Council member
Luc Coene said in an interview released Sunday.
Coene, who heads the Belgian National Bank, told the Financial
Times that the “ideal” would be for all Eurozone member states to stick
to the common currency, but that if a member state decided its best
interests lay outside the bloc, then it could leave.
It is up to politicians and not the ECB to decide when the Greeks
have ceased to respond adequately to their partners’ accommodation, but
the ECB cannot and will not save the day if the absence of a political
agreement leads to insolvency of the Greek banking system, he said.
Greece’s banks “are still on ELA but they are still solvent,” he
said. “The question of course is what happens when there is no
[political] agreement? If the banks become insolvent, you have a
In such an event, monetary authorities “don’t have a choice. We do
not provide ELA to insolvent banks,” he said. The assistance would
“absolutely” have to be terminated automatically, he said.
“That is one of the principles of the whole ELA policy,” Coene
explained. “It is emergency liquidity assistance – not solvency
Asked if the goal of preserving financial stability might allow the
ECB to continue to prop up Greek banks, Coene noted that the
Eurosystem’s mandate does not explicitly include such concerns, and he
suggested that the central bank’s hands would be tied in the absence of
an agreement at the political level.
The main risk of a withdrawal of Greece from the Eurozone, which he
said in essence “would be possible,” is contagion.
“The rest can be managed,” Coene said. “There would be pressure on
Europe’s firewalls, but “they are sufficient for the moment and I am
quite confident that if circumstances showed that more was needed, more
would be there.”
Coene said that the weakness of Eurozone banks was a temporary
byproduct of lack of confidence in sovereigns and that as such, a
resolution of fiscal concerns would “automatically” address the banking
In this context, he rejected additional fiscal stimulus and urged
that growth be allowed to result from structural reforms.
Turning to the outlook for the Eurozone economy, Coene conjectured
that the updated staff forecasts to be released next month by the ECB
would show “not much of a difference compared with March’s forecasts –
maybe a slight deterioration in growth but nothing dramatic or
Inflation presumably above 2% throughout 2012 does not call for ECB
action since it reflects technical factors and energy prices, he said.
“If we see a rise in inflation trends, we certainly have all the
measures necessary to act – we can increase rates without having to
change our non-standard measures,” he said.
Coene continued: “Conversely, in my view we have not reached the
zero bound [on interest rates]. Whether it will be reached remains to be
seen. But on the non-standard measures, there is clearly potential for
further steps if ever that became necessary – whether they were new
measures or old ones would depend on circumstances. But I don’t think we
have exhausted our instruments in that respect.”
A third three-year long-term refinancing operation is also
possible, but like everything else only serves to “buy time, and there
is also a limit to how much time you can buy,” the Belgian central bank
chief said. “One of the lessons we have learnt is that low interest
rates for too long create new problems.”
–Frankfurt bureau tel.: +49-69-720142. Email: firstname.lastname@example.org