The ECB holds one of the keys to Greece’s future. With concerns about a Greek default rising, central bank officials have developed proposals such as increasing the discount imposed on collateral offered by Greek banks.
That has the benefit of limiting the dangers to the euro-area central-banking system. At the same time, it would also risk worsening Greece’s liquidity squeeze and could spark capital controls. It is therefore a decision that the ECB is unlikely to make without the support of European Union governments, said Holger Schmieding, chief economist at Berenberg Bank in London.
“The ECB will not take the big political decision,” according to Schmieding. It will keep banks afloat with Emergency Liquidity Assistance while negotiators keep trying for a deal “but tighter collateral requirements could send a strong message to the Greek government that time is running out.”