Three days ago we observed that after surging in January, Greek deposits had slowed to a trickle in February, with just €1 billion in outflows, following the €12 billion redeemed in January. At least that was the case according to Reuters which cited a "senior banker who declined to be named." The news appeared a little too good to be true, and as we suspected was merely an attempt at boosting "Greek leverage" ahead of the Euromeeting which ended in a spectacular, chaotic fashion, and no decision being made. Remember: the greater the bank outflows, the weaker the Greek negotiating stance when debating the Eurozone (whose leverage in turn is calculated by the level of the Eurostoxx 50).
Overnight Greek Kathimerini came out with a different report, one which appears to capture the reality of the situation better, especially following Wednesday's disappointing Eurogroup meeting and yesterday's news that the ECB has boosted the Greek ELA availability from €59.5 to €65, suggesting the bank run had accelerated and bank funding was on the verge of evaporating again.
Senior bank officials have told Kathimerini that almost all the liquidity available to Greece (59.5 billion euros) has been absorbed and that banks’ total dependence on the Eurosystem amounts to 90 billion. The rapid deterioration in liquidity conditions has been attributed to the uncertainty that arose when the snap general elections were called as well as the new government’s inability to reach a swift agreement with the country’s creditors. Following the 4-billion-euro outflow in December and 12 billion in January, bank deposits have already shrunk by another 3 billion this month.
So the €1 billion deposit outflow now becomes €3 billion in just 48 hours? What a difference "anonymous sources" make.
As for the logic behind the ECB's decision to first yank Greek collateral and then to trickle it to Greece on an ad hoc basis, it is quite simple: keep Greece on a short leash and remind it that should it try to pull away, all the funding will disappear.
Frankfurt’s decision shows its intention to place stricter controls on the supply of cash to Greek banks in the wake of Wednesday’s inconclusive Eurogroup meeting. “The more time that passes without an agreement with the eurozone, the more the ECB will restrict the limits by supplying liquidity that only covers a few days’ needs, and as the February 28 deadline approaches [when the bailout extension expires], the risk of an ‘accident’ will grow,” a bank official noted.
And of course, while "The ECB council is to convene again on Wednesday to examine another increase to the Greek limit" everything depends on the outcome of Monday’s Eurogroup meeting.
Which brings us back precisely to the negotiation at the heart of the Greek drama, where as we reported yesterday, it was first reported that Germany is caving in its strict demands toward Greece.
Greece and Germany are pursuing a deal on the conditions required to continue the Greek bailout as each side signals a willingness to compromise, according to government officials taking part in the talks.
Germany won’t insist that all elements of Greece’s current aid program continue, said two officials in Berlin. As long as the program is prolonged, they said, Germany would be open to talking about the size of Greece’s budget surplus requirement and conditions to sell off government assets.
For its part, Greece is prepared to commit to a primary budget surplus, as long as it’s lower than the current 4 percent of gross domestic product, according to Greek government officials. Prime Minister Alexis Tsipras’s coalition also might be willing to compromise on privatizations, one of the officials said.
Of course, one can debate if this is Germany blinking or Greece folding, because at the end of the day, what it boils down to is an extension of the Greek bailout program. That said, now that Greek bank liquidity is precariously low, Greece appears ready to accept whatever deal it can. Back to Reuters which earlier today reported that the negotiation is all but over and that "Greece will make every effort to reach an agreement with its euro zone partners at Monday's meeting of euro zone finance ministers on how to transition to a new support program, its government spokesman said on Friday."
The punchline: "We will do whatever we can so that a deal is found on Monday," Gabriel Sakellaridis told Skai TV. "If we don't have an agreement on Monday, we believe that there is always time so that there won't be a problem."
Prime Minister Alexis Tsipras, attending his first European Union summit, agreed with the chairman of euro zone finance ministers, Jeroen Dijsselbloem, that Greek officials would meet representatives of the European Commission, the European Central Bank and the IMF on Friday.
"The aim is for the negotiating team on technical issues to finalize a proposal which will be taken to the euro working group at noon on Monday and then in the afternoon to the Eurogroup to find a solution," Sakellaridis told Greek Mega TV.
He said discussions on technical issues would begin on Friday but Athens remains opposed to implementing reforms that intensify austerity and weaken the fabric of the social state. "What we have been saying is that by Feb. 16 (Monday) we want to reach a mutually beneficial agreement with our partners and we are moving in this direction," Sakellaridis said.
In other words, despite all the posturing, all the harsh words, all the rhetoric, money once again walks. And it is precisely the threat of the money walking away that appears to have ended the Tsipras goverment's will to continue pushing hard on its hard-line stance, leading to a government that is now willing to do "whatever we can."
Which is music to the ears of Merkel and the ECB, as the can appears to have been kicked at least until the next Greek election after which nothing much will change either.