April 26, 2018 / 4:19 PM / a year ago

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

FRANKFURT, April 26 (Reuters) - Greece will probably lose access to cheap central bank money when it exits a bailout programme 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 bond-purchase programme, leaving Europe’s most indebted country out of the ECB’s stimulus scheme.

Having received 260 billion euros in financial aid since 2010, Greece hopes to make so-called clean exit from its third bailout programme in August, returning to market funding without a precautionary assistance programme.

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 programme 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. (Reporting by Balazs Koranyi, editing by Larry King)

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