Earlier this week, when we reported [4]that as part of the just passed latest Greek austerity package which open the way for the third Greek bailout, "one of the preconditions imposed on Greece for a deal is that it signs into law European rules that would put euro zone authorities at the ECB and in Brussels, rather than Athens, in charge of identifying and closing or breaking up sick banks."
As Reuters added [5], "this in turn could lead to a shake-up of the sector that could see some banks close, with losses pushed onto bondholders and possibly even large depositors. In such circumstances, there would be little that Athens could do to prevent this."
That was merely the political aspect of Greek handing over its sovereignty, which also meant granting control of Greek banks to the ECB.
Earlier today, Draghi also confirmed the far more practical one. First, as we learned, Greek ELA was increased by another €900 million to just shy of €90 billion.
[6]
But more importantly, Draghi also stated that total ECB exposure to Greece (i.e., its banks) now stands at a total of €130 billion which includes various EFSF and other claims. Putting this in context, total Greek deposits were at about €120 billion at the last optimistic estimate, and likely well lower now.
In other words, as the chart below shows, when it comes to the entire Greek financial system, the ECB is now in full control with its "support" of banks at least €10 billion more than total Greek deposits.
Incidentally, the latest total exposure to Greece is about €30 billion more than the entire capital and reserves of the Eurosystem, but that is a topic for another day...
[7]
Which brings us back to the original question: for all his pompous rhetoric, Mario Draghi showed that when it comes to determining the political fate of a nation, he will not hesitate to force capital controls. So it will be up to Greek depositors now, for whom the question is simple: will they trust the "goodwill" of the ECB ever again - sure Draghi got his way, and is allowing a modest increase in bank withdrawals once capital controls are lifted, but what happens if Greece again votes in an anti-austerity party when the next inevitable elections take place, and specifically: how long before the ECB once again freezes Greek ELA so no more deposit withdrawals will be allowed.
For the answer, look at what Greeks will doing when banks reopen: will the lines be to deposit cash... or to withdraw it. If the latter, then nothing has really changed and the ECB will be forced to keep raising its ELA until such time as it caps it once more, or all Greek deposits are withdrawn and the ECB no longer has any leverage over Greece.
