ECB Saves Greece From Certain Bankruptcy. Again

Tyler Durden's picture

A few days ago we wrote that "Greece Runs Out Of Money. Again" because it did. The country, which is permanently locked out of the bond markets, would be down to a negative cash balance as soon as its August bond payment to the ECB was made. The reason is that the Troika continues to delay its decision. whether or not to hand over Greece its next monthly allowance. So with the country threatening to once again be on the front page as math rears its ugly head, the ECB has decided to take the bold step and admit that in lieu of even remotely credible collateral pledged and repledged in the ponzi repo system, the ECB has no choice but to expand the universe of eligible "collateral" against which it will provide cash. From Reuters: "The ECB's Governing Council agreed at its meeting on Thursday to increase the upper limit for the amount of Greek short-term loans the Bank of Greece can accept in exchange for emergency loans, the newspaper said in an advance copy of the article due to appear in its Saturday edition."

As a reminder, on July 20 the ECB pretended to act in a prudent fiduciary capacity and halted the acceptance of worthless Greek bonds as eligible ECB collateral. Naturally, this was merely an epic case of sweeping under the rug, because bonds eligible for traditional collateral had already ran out, even as the ECB greenlighted the continued provisioning of funding via the Emergency Liquidity Assistance, or ELA, in which the pathway of repledging a liability as a money good asset took on one extra step by using a national central bank as an unnecessary intermediary. The reason: merely to obfuscate the fact that actual money good collateral, and by implication, assets, no longer exist, allowing the Eurosystem to accept more and more worthless "assets" in exchange for frashly printed euros.

This is precisely what just happened:

Until now the Bank of Greece could only accept T-Bills up to a limit of 3 billion euros ($3.70 billion) as collateral for emergency liquidity assistance (ELA) but it has applied to have this limit increased to 7 billion euros, the daily said, citing central bank sources.


The ECB Governing Council gave this wish the green light, the paper said.


The move should enable the Greek government to access up to an extra 4 billion euros of funds, the paper said, adding that this should ensure the country keeps its head above water until the "troika" of the European Union, the European Central Bank and the International Monetary Fund decide on the disbursement of the next tranche of money from its aid program in September.

So does this step-wise increase in the pool of eligible collateral mean that eventually each peripheral country will run out of assets pledgable for cash (which in turn is used to pay interest to the ECB and various other "Official" institutions)? Yes, at least under the current regime. Because when all possible assets that Greece has have been handed over to the ECB for safekeeping just so the country is "allowed" to stay in the Euro and continue to pay its institutional interest, all the while allowing for "privatization" asset sales to take place for various Western banks.

Sadly, even if the ECB were to lower it eligible collateral threshold to zero, the fun will eventually end in a world of finite assets, because while one can print electronic money with the push of a button, an "asset" by implication takes at least some effort, and cost to create.

This is just what we explained back in May, when we quantified just how much borrowing capacity unde rthe ELA Greece, which is now less than a shell of a real economy, truly has.

From Quantifying The Plan Z Dry Powder - This Is The Greek ELA Borrowing Capacity

We already posted a full run down from JPM on what the immediate costs from a Greek EMU exit would be (starting at €400 billion and going higher), but one point that bears repeating is just how much borrowing capacity Greece has under the ELA in the aftermath of today's news that the ECB is leaving Greek banks to fend for themselves until such time as the Greek recapitalization payment is wired over to Greece, which the ECB has defined simply as "soon." The answer: woefully inadequate, and certainly not enough to backstop the remaining Greek deposits of €170 billion as of the end of March (likely far less now), at €65 billion. And that's an upside estimate: as JPM says "The true maximum amount that Greek banks can borrow via ELA is likely though to be significantly smaller because not all loans are accepted as collateral via ELA." Remember: this is all just one giant game of chicken - Greece's Syriza has bet the farm that the cost from a Greek fallout is just too big to Europe and the terms of the hated "Memorandum" will be adjusted, while to Europe, on the other hand, the outcome to Greece, at least according to Europe and the IIF's Dallara will be "between catastrophic and armageddon." So... Who blinks first?

From JPM:

Greek banks have run out of ECB eligible collateral already and can only access Bank of Greece’s ELA, but even with ELA, the collateral,typically loans, is not unlimited. They have already borrowed €60bn via ELA which, assuming 50% haircut corresponds to around €120bn of loan collateral. Outstanding loans are €250bn, so Greek banks have a maximum of €130bn of remaining loan collateral which allows for a maximum of €65bn of additional borrowing from Bank of Greece’s ELA. This corresponds to around 40% of Greek bank deposits which stood at €170bn as of the end of March. The true maximum amount that Greek banks can borrow via ELA is likely though to be significantly smaller because not all loans are accepted as collateral via ELA. The alternative is for Greek banks to be allowed to issue more government guaranteed paper but the ECB can, with a 2/3rd majority, block a steep and unsustainable increase in Bank of Greece’s ELA. This would effectively cut Bank of Greece off from TARGET2.

Once TARGET2 starts unwinding, with a massive €644 billion claim on the Eurosystem by the Bundesbank, and the realization that an imploding heretofore "contingent" and suddenly all too real liability amounting to 25% of German GDP means an in-kind collapse in living standards, then the simmering German anger will go truly parabolic.

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Jlmadyson's picture

Save #127


Saved indeed.

nope-1004's picture

So where to these funds come from?

Bay of Pigs's picture

Swap lines via the FED?

But, but, but...they said no more...

malikai's picture

Just waiting for the signal. I want in on this fade so bad I can taste it.

engineertheeconomy's picture

Corrupt politicians giving away their citizens freedom, wealth and resources...

and that's news?

AldousHuxley's picture

Greece is fucked.


French/German banks loan to Greece debt which they can't repay, but heck it is fun to spend other's money

years later, Greece says they spent all of the money partying and Uzo

French/German banks "save" greece from bankruptcy with more  loans that just stretches out repayment schedule longer.

years later, Greece says lower interest rate isn't helping.

French/German banks strech our repayment schedule longer to lower interest rate....



What needs to happen is Greece to declare bankruptcy and get their house in order.

French/German banks need to be punished and take the loss for giving loans to while knowing they can't pay back.

Investors with these banks need to be punished for not supervising banksters.

Let hard working Greeks improve their own situation. rolling over debt to lower interest rate isn't helping.

MisterMousePotato's picture

I don't think that this is going to end well, but - for the time being at least - seems like Greece wins. Again.

How long can/will it go on? I started lurking here well over two years ago. From what I could deduce, seemed then like it was, "Game over, man. Game over."

But I've yet to see any significant change or changes anywhere. Every day just seems like more of the same.

savagegoose's picture

as more and more people strip their wealth from the fiat system , it become smore fragile.  the dilution of paper value increases, all you have to do is ensure you're out the game and let them destroy themselves

The Monkey's picture

Seems like very few people are watching German sentiment.

saturn's picture

The ECB is operating beyond the mandate I am willing to entrust in their incompetent hands. They, apparently, don't give a f*ck.

Hulk's picture

The funds are optical...

centerline's picture

Like check kiting, it's all in the flow!  

RockyRacoon's picture

So where to these funds come from?

No, really.  I'd like to know as well.  Having collateral and all that is one thing, but "money" from where to trade for the trinkets offered as collateral?   Will this shit never end?  I've got bailout fatigue.  I need to go fishing.

Bay of Pigs's picture

Well, the FED hid $11T of "funds" in 2008/9, so my guess is that they have, or will do the same thing.

Conrad Murray's picture

Hell, the Pentagon admitted to not being able to track $2.3T on September 10, 2001.

Hype Alert's picture

Exactly.  This reminds me of when Kanjorski demanded that mark to market be shelved and that worthless paper would be valued MUCH higher than it was worth in real terms.   There can only be one outcome when you think about it being part of a pool of assets and one of them, by edict/gunpoint, is artifically priced in a fiat monetary system.  The pool of assets value doesn't change in total and never will, but the worthless paper will force all the other assets in the pool to rise in cost in nominal terms to balance it out with the artifically priced worthless paper.  This is the part of free market they can't control and obviously don't understand.  Much the same as forcing minimum wage up will never increase overall living standards.  It simply limits the number of people you can hire.  They really should teach this stuff in school.


HardlyZero's picture

From $100B in Libya Gold held in Manhattan ?

OpenThePodBayDoorHAL's picture

Libyan gold is mostly in shipping containers buried out in the desert. My brother-in-law lived there the last five years and was in the top levels of society/gov't. He says it was well-known: Gaddafi would bury the gold, then the guys who buried it were machine gunned. Only the Colonel knew the GPS coords. Maybe you could find it with some remote satellite imaging...would make a good movie plot.

BenwaBall's picture

This might be the dumbest comment that's ever been posted on the internet.

Jlmadyson's picture

Million dollar question as always, but watch the swap lines.

JohnKozac's picture

Do swap lines show up on the Fed balance sheet as an expansion? Or what line do you look for on the Fed balance sheet?

Haager's picture

I've heard that the ECB had some reserve because they've put 70% with the bailout of 210billion , leaving 30% as reserve. 

Will that show up somewhere?

HardlyZero's picture

Ahh, yes ...this Thursday can kicking explains why the price of Gold went up Friday, on a nice upward trend.

Yes, the expansion of the lending facility leads to the POG increasing linearly (possibly exponentially).

takinthehighway's picture

I get this mental image of cheerleaders chanting, "KICK THAT CAN...KICK THAT CAN"...

bank guy in Brussels's picture

As Jim Sinclair has long said,

What must be provided, will be provided ... Have no doubt about that

QE to infinity ... the only tool in the toolbox

In Europe as elsewhere, the can WILL be kicked

slewie the pi-rat's picture

{Paste}:>  Remember: this is all just one giant game of chicken - Greece's Syriza has bet the farm that the cost from a Greek fallout is just too big to Europe and the terms of the hated "Memorandum" will be adjusted... <:

why just this one party?  not sure how this works at this point;  has someone called another election?  syrizzza isn't even part of antonioSam's goobermint but is the "opposition" in the parliament

yes,l it can be seen as a game of chicken, but why by syrizzza?  [this part sounds like it was written before the last election...]

HardlyZero's picture

Well, the other parties just snagged another $4B...probably a 'honest take' from the 'man'.  They will run this ship onto the shoals, and then steal from the passengers as they escape, and then gut the shipwreck...and then let the wrecked facade rot and rust in the tide.  Then probably invite everyone to watch the whole thing and charge entry fee and rent out prime seats to TPTB to take notes.  Then shoot some movies and sell the rights.  Haven't had this large size of a currency collapse in many decades or centuries, so it should be a big deal with lots of sidebar events.  SOP for these things.

slewie the pi-rat's picture

plus, i misunderstood what tyler was doing there, quoting a piece from b4 the election

written b4 the election, the above {Paste} is no longer "party-correct" but does indicate how the MSM propaganda about the realities of greek politics were picked up and spread b/c altho the various pollls did show syrizzza doing as well as anybody prior to the election, the uynderlying party alliance dynamics were ignored by all but a few...

..but i'll bet they sold a shitload of soap!

the banksters still probably want to keep the EU together, btw...

as tyler notes... the wealth transfer of greece's assets to the banksters' holding companies is the important item tho

for FIAT!!!

good thing "it can't happen here", huh?

saturn's picture

What supernatural force is holding Greece in the Eurozone, I wonder?

HardlyZero's picture

Summer vacation.

September will be a bi*ch.

Everything after the O-lympics and the 'last' Summer-2012, and US Congress is out of town.

And USPS is bankrupting while everyone else is off in the Hamptons or vaca in Spain.

fonzannoon's picture

It seems like the idea is that once people lose their belief in fiat money everything goes to hell pretty quickly. So it seems like all you have to do is keep your head in the sand and believe in fiat money and that won't happen. I feel better now.

slyhill's picture

Right. And if you are smart (lucky) enough to have everyone else base their illusion on yours, they have little choice but to believe. 

fonzannoon's picture

I guess my point is, faced with losing trust in the dollars in their wallet, or not losing trust....people will just not lose trust. If inflation started creeping higher and higher I think people will create more and more enemies to blame for that than the idea that their dollar is dying.

malikai's picture

At the end of that road, which can be quite long, you have the inevitable.. Truth.

New_Meat's picture

ECB gets the Vezina Trophy this year, no sweat. - Ned

CClarity's picture

These ECB stick saves probably qualify them as a team for the Winter Olympics 2014 - when the same game may still be in play.  The ECB Hockey Team. But will they play against or in the same bracket as the NYFed Plunge Protecters team? Sigh.

Uncle Remus's picture

Fucking assholes.

Jlmadyson's picture

Oh yea;


But, but, but CNBC said Troika was the boozaka.....the savior of all.....right?

Need More Cowbell's picture

They just need more cowbell

centerline's picture

Closer and closer to zero each day.  And each step raises the stakes.  Yeah, this is going to end well.  Seems to me the EU is trying to buy time to get through the American elections.  Hot potato toss might be coming up.  USD is too strong.  And remember these central bankers all work for the same team (Goldman mostly).

fonzannoon's picture

I truly fail to understand what getting through the elections does for TPTB. If the world fell apart before the elections or after it what difference does it really make?

centerline's picture

Same here.  But, the effort to pull it off is amazing.  For this reason, I really can't wait to see what comes next!

malikai's picture

It's just a show. An excercise in futility (and spending money). We all know that both horses are owned by the same guy. The entire purpose of the elections these days is to provide adequate distraction by focusing the sheep on the two poles of influence. If all goes well, for the next four years, the sheep will be too busy fighting the other camp to pay any attention to what's really going on.

centerline's picture

It's a show, but you can't have the strings showing.  At least not so obviously that the illusion is lost.  Right now there are still lots of folks trapped in the "my team" against "your team" paradigm - or hopelessly distracted by usual sideshows of abortion, gay rights, race, gender inequality, etc.

Jlmadyson's picture

Probably not much besides keeping or putting whoever they want in the office.

fonzannoon's picture

I don't see that ever changing. After we allowed the same group of assholes after 2008 to keep running the show I don't see why it matters anymore. The public proved to be a big dumb collective idiot.