As Greece and the EU start jockeying for position on the Greek governmental debt negotiations, developments in the private sector may accelerate the crisis. The New York Times reports:
[T]he Greek banking system… after massive outflows of deposits is relying on cheap ECB loans to fund day-to-day operations. ECB officials over the weekend made it clear that if the programme expires at the end of February, the central bank would be forced to cut off their liquidity loans.But they have not clarified whether Greek banks could still access back-up central bank financing, known as emergency liquidity assistance. Although technically loaned by the Greek central bank, it must be approved by the ECB, which has been cagey on whether such lending would be allowed.
In Greece right now it is not the government which needs cash; estimates suggest that one way or another Athens can pay its bills through June without more handouts. The trouble is the banking system. As we’ve noted, depositors have been (wisely) moving heaven and earth to get their money into safer foreign banks. The banks need cheap money from the ECB to stay in business, but it’s not clear that the ECB will want to prop up Greek banks while the government defies its creditors and takes a tough line in negotiations.It is not clear how much time remains before the crunch comes, or what form the crunch will take—and with the Greek government new and untested, and the rest of Europe deeply divided over the best way forward, future developments in Europe are getting harder to predict.