Following "Soft" Capital Controls, ECB Threatens Greece With ELA Cut Even As 1 Million Workers Go Unpaid For Months

Tyler Durden's picture

Things for insolvent, cashless Greece are - not unexpectedly - getting worse by the day.

Following yesterday's shocking decree that the government will confiscate local government reserves and "sweep" them into the central bank to provide the country more funds as it approaches another month of heavy IMF repayments, earlier today Bloomberg reported that the ECB would add insult to injury and may increase haircuts for Greek banks accessing Emergency Liquidity Assistance, thus "reining in" the very critical emergency liquidity which has kept Greek banks operating in recent weeks as the bank run sweeping the domestic banking sector has gotten worse by the day.

ECB staff have proposed increasing the discounts imposed on the securities banks post as collateral when borrowing from the Bank of Greece, the people said, asking not to be named as the matter is private. While adjusting these so-called haircuts hasn’t been formally discussed by the Governing Council, it may be considered if Greece’s leaders fail to quickly convince euro-area finance ministers they can reform their economy and secure bailout funds, one of the people said. Greek bank stocks slid.

According to Bloomberg, the ECB staff proposal lays out three options to reduce central-bank risk: "the scenarios envisage returning haircuts to the level before late last year, when the ECB eased its collateral requirements for Greece; to set them at 75 percent; or to set them at 90 percent. The latter two options could be applied if Greece is in an “orderly default” under a formal ECB program or a “disorderly default,” CNBC said, without further elaborating on those terms."

Any reduction in ELA availability would be devastating to Greece, where depositors continue to pull cash from banks accounts to the tune of several hundred million euro every week, and the central bank "seeks to match the outflow with ELA. The Bank of Greece keeps a buffer of around 3 billion euros of ELA allowance in reserve, to give it time to react to a possible bank run, one of the officials said."

Any reduction in this buffer would lead to a self-fulfilling bank run prophecy and accelerate the deposit flight to the point where the local banks are forced to halt operations, and Greece is forced to replace the "soft" capital controls already rolled out with "hard" ones.

To restrict or veto ELA funding, which is provided at the Greek central bank’s own risk with consent from Frankfurt, a two-thirds majority of the Governing Council is necessary. A growing minority is opposed to continuing to provide the assistance indefinitely, one of the people said.

And while the date of the next ECB governing council is May 6, the locals aren't waiting around: as the following chart shows, the prices on Greek government bonds just tumbled to a record low.

 

The Greek sovereign debt isn't doing any better:

 

Meanwhile, the reality is that for a majority of the Greek population, none of this really matters because as Greek Ta Nea reports, citing Labor Ministry data, about one million Greek workers see delays of up to 5 months in salaries payment by their employers. The Greek media adds that about 45% of salaried workers in Greece make no more than €751 per month, country’s old minimum wage; which also includes part-time workers.

So will the Greeks just ignore macro developments as their country slides into insolvency oblivion? Perhaps not: according to the latest Skai TV poll, fewer than half of Greeks, or 45.5%, said that the government's strategy in negotiations with creditors is correct, down from 55.5% in late March, and a plunge from the 72% in early February.  Also notable: the number of Greeks who say the strategy is outright wrong rose to 39.5% vs 27.5% in late March, and 22.5% in early February.

If and when wages are withheld long enough, and the bank capital controls are officially enforced, and when the majority of the population finally turns soure on its idealized image of the new "radical left" regime, and demands a new government, only then will the Troika succeed. Or rather it will succeed only if the Syriza government is replaced with another one made up of former Goldman employees and various Troika-friendly technocrats.

If the replacements come from the neo-nazi Golden Dawn then all bets are off.

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Seize Mars's picture

Wait 'til they stop paying kops.

Haus-Targaryen's picture

The ECB cannot cut off Greek banks from the ELA.  If they do they guarantee the failure of the Greek Banking system, which would trigger a GREXIT. 

Unless the Greeks give in (I find that really likely) or the Germans give in (I find this unlikely as the Spanish will be doing this EXACT same thing next year) -- the best thing they can hope for is the default of the Greek state, and "finess" the treaties to allow the ELA to keep flowing the entire time.  

Latina Lover's picture

If the Greek political leaders had any integrity, they would default. Unfortunately, in their defence,  I'll bet they and their families have been threatened by the banksters.

Looney's picture

One million unpaid workers in the country of 10.8 million? This is a glimpse into OUR future here, in the US.

Looney

NoDebt's picture

This whole situation reminds me of the old phrase "you can only piss down a hole for so long."

DeadFred's picture

What is the Greek word for zombies?

Haus-Targaryen's picture

I would tend to agree.  

I always wondered why they changed their opinion so quickly a fwe months ago.  This always came into my mind as the only logical answer.  

The other possability I kept thinking about was they actually believe in the EU.  
The first I find more likely than the second.

victorher's picture

Latina, you are completely right. Months ago it was clear that there is no other honest decision than call for new elections and talk the people the truth: we failed, we promised you not more punishment because we trusted in extract more money from our european comrades, but they said no and we have to choose between dignity with dracma or serfdom with euro.

But not, politicians are totally unable to say one, only one, truth. They have prefered to worsen the situation, to steal money from pensions and now from local authorities, while banks were running out of money and all the nation is poised to collapse. Kicking the can is the only thing they know to do.

Take advice from Greece, at the end of the day every western government is going to do the same. 

 

Latina Lover's picture

Well said, thank you for your informative comment.

HenryHall's picture

>>> If the Greek political leaders had any integrity, they would default. Unfortunately, in their defence,  I'll bet they and their families have been threatened by the banksters.

Sadly, so very true.

Escapedgoat's picture

You put "Political Leaders" and "Integrity" in the same sentence, two terms which in today's world are  an OXYMORON.

Arius.'s picture

"If they do they guarantee the failure of the Greek Banking system, which would trigger a GREXIT. "

 

common genius, dont tell me, you still dont get it thats what the end game is ... let me give you another clue: isnt about greece, is about what comes next .... timeline?  let just say october or so ...

Haus-Targaryen's picture

I have no idea what you are attempting to say. 

Arius.'s picture

there is a script from where Schwable and the rest of the crew take the lead.

what you are saying is not possible because it will cause Grexit IT WILL happened because that is the end goal.

However, this is just the start ... more to come in October ... clear enough?

Haus-Targaryen's picture

If you have some inside information, I'd love to hear it. Maybe send it to the Tylers. 

Arius.'s picture

it is called critical thinking ... either you have it or you dont.  there are many pieces of info that you can put together, if you pay attention.

 

this kind of information is on a "need to know basis", dont expect anyone who knows anything to say it, unless it is time to do so. 

Haus-Targaryen's picture

So you're a Mouth Breather who picked October out of thin air.

Winston Churchill's picture

He may well be a mouth breather, but his schedule seems about right looking at the

larger picture, ie IMF reforms, and needing a big bad dog to round up the sheeple.

kizell's picture

My thoughts precisely.   I'm not getting worked about any capital control development until this happens.  Because when it does, the only security for the state will be military forces, and when they start revealing themeselves, we see how much weight this crisis can carry for the eurozone.  Specifically,  we will see just how much/little Draghi can do.

geno-econ's picture

Good point. However, more to the point, is the Greek military on a seperate defense budget and will it be affected by drastic cuts and delays in salaries to soldiers , Generals and supply of wine and rations ?  Traditionally, when things get out of hand in Greece and elsewhere, the military steps in.  So the question of the day is where does the military stand in this so called austerity ?  Anyone know ?  In addition the Greek Orthodox Church has been silent--- so far.

kizell's picture

It will be interesting to see how that works out.  I doubt cuts to the military would happen though.  The grexit would happen before cuts were made there imo.   But if they do cut salaries, I can think of a few high ranking officials that better leave the country asap.

NoTTD's picture

"Greek military"  is an oxymoron.

101 years and counting's picture

if you're greek, and you still have "money" in the bank, shame on you.

Fun Facts's picture

The ECB Dick Tatorship

Don't want to work on Maggies Farm no more

Hype Alert's picture

They're just going to keep kicking the Greece can down the road until people will be so tired of hearing it, they will cheer when it finally implodes.

Chuck DeBongo's picture

OK, I get it! Greece is up a certain creek without a certain instrument. Let's take it as read that they are going to default in some form or another. What I think would be of more interest is what the knock on effect would be.

 

For instance, in the event of a Greek default, whose derivatives would be hit and how hard would they be hit? How many of the Greek citizens have taken their money out of banks and kept the liquidity under their control? How many Greeks are buying gold and silver? That kind of information would be interest; if only to see if our predictions of where people will put their cash are correct or not.

 

Let's be honest, people outside of Europe (i.e. our friends in the North America and Asia) are using this as a microcosm to what would happen if a bigger economy (i.e Japan, China, the United States, etc) has a similar default or economic trouble. It's a good way of preparing for the event we all believe will happen. I've done pretty much all the preparation I can do. All I can do now, is sit tight and hope my prediction was correct. But you lot still have more time than me. Use it well....

SmallerGovNow2's picture

Look at Argentina, Venezuela, and Brazil to see what happens...

MajorFall's picture

With all the conflicting news on Greece, I don't have a clue as to what the end game is anymore...

elegance's picture

They will bankrupt them but still keep them in the Eurozone.

Spungo's picture

I still don't understand why they can't cut spending and pay down the debt as aggressively as possible.

kizell's picture

This is not America.   The Greek government does not have a large supply of tax receipts to work with.  To put it another way, the Greek people have little to offer in the form of productive work for meaningful tax collections. 

Monty Burns's picture

Agreed. But just goes to show that the standard of living they enjoyed on borrowed money was unsustainable.

NoWayJose's picture

The Great Irony is the attempt by the ECB to stimulate the EU economy by pumping out unlimited free money - while at the same time it is shutting off the taps to Greece!

Woodyg's picture

once greece and all the other small southern euro countreis adopted the euro as their currency it was all bakedin the cake at that point.

greece gave up their monetary soveriengty and the result is what is happening now-

the economic hitmen have plundered the easy "foreign" countries - now they're moving on to the western countries - one by one starting w greece -

but don't worry greece - germany and the banksters just want All the Assets such as  the nice pretty islands and of course the utilities...

give away your soveriengty to the western bankster - Great Idea!

LawsofPhysics's picture

LOL!  All these self-proclaimed "leaders" and "officials" grow more irrelevant by the day...

tick tock motherfuckers...

juggalo1's picture

At what point would a redenomination to the drachma the less painful method?  Seriously, this has been painful for years, and there is no sign to an end of it.  Just take back your currency sovereignty, and tell them this is what you will pay.  What will they do?  Invade?

NoDebt's picture

The question is, painful for WHO?  Please don't tell me you're looking at this from the point of view of the average Greek citizen.

Peter Pan's picture

Yes, they will invade, but instead of doing it themselves which would seem barbaric they will get Turkey to do it for them.

cherry picker's picture

There is a possibility there is another threat looming over them, one which has military written on it.  But not to worry, Greece is a member of NATO and if there is military involvement we can count on another war to feed the armament manufacturers, creating employment in far off lands.

Joe A's picture

"A growing minority is opposed to continuing to provide the assistance indefinitely, one of the people said."

That is still far away from the 2/3 of the votes needed to veto the funding. This is just fear mongering by the ECB.

FMOTL's picture

Even on ZH the words Golden Dawn are always prefixed "neo-nazi". I,m curious , do Golden Dawn describe themselves as "neo-nazi" or "nazi" ? Or are they actually just "nationalists" ? Are nationalists automatically described by everyone else as "neo-nazi" these days ? Seriously , i,m just trying to keep up with officially approved speech by everyone else (even ZH ??).

Peter Pan's picture

My friend you have to understand that even though Golden Dawn might not have committed any crimes, the fact that they parade themselves they way they do, salute the way they do, dress the way they do and so on, does not endear them or create any sort of real respect. Any support they have rightly received from the people is not based on people believing in them but largely as a result of people being fed up to the back teeth by the mainstream parties.

FMOTL's picture

Ah thanks for the reply Peterpan and Mr Goat, I was genuinely curious, but is,nt this sort of thing a natural and belated (to late )reaction to the cultural genocide of native European peoples through forced immigration that none of us consented to and we are even forced to pay for through involuntary taxation and welfare

Escapedgoat's picture

For your satisfaction there are Here pictures of themselves,

and you can make your own mind about them.

On the other hand the question is how do they exist ? ....I mean  WHO FINANCES  them?

And when you follow the money the answer may NOT surprise you.

My advise ? the classic  FOLLOW THE MONEY.

nicxios's picture

Shipowners who yearn for the days of the junta.

exartizo's picture

The EU is obviously trying to force regime change from the bottom up, applying the screws gradually, until the electorate clamours for the replacement of Syriza.

Peter Pan's picture

So does Greece do a 300 Spartan move and resurface somewhere down the track both morally and financially victorious or does she sell her soul, her people and her land for a few more breaths of air?

History and disgruntled citizens have never been kind to traitors.

youngman's picture

If you have not got paid in over 7 months..I would say you have lost your job....jus sayin