June 19, 2015 / 5:36 AM / 2 years ago

ECB boosts emergency funding as Greek banks bleed, Tsipras calm

ATHENS/LUXEMBOURG (Reuters) - The European Central Bank expanded emergency funding to keep Greece's stricken banks on their feet as a steady flow of withdrawals continued on Friday ahead of a summit next week that could decide whether the country can stay in the euro.

With pressure on Greece's fragile banking system growing daily, the ECB held a teleconference and raised the cap on so-called emergency liquidity assistance, which the banks rely on to keep operating, by 1.8 billion euros, Greek officials said.

That should be enough to keep the system running until euro zone leaders meet on Monday night in a last-ditch effort to reach an aid-for-reforms deal with Athens.

As the country edged closer to a possible default at the end of the month, leftist Prime Minister Alexis Tsipras assured Greeks that prophets of "crisis and terror" would be confounded, and his government would strike a deal with European Union and IMF creditors.

However, European Council President Donald Tusk said no one should assume that the emergency summit of euro zone leaders he will chair on Monday evening would find a "magic solution".

"The game of chicken needs to end, and so does the blame game. Because this is not a game and there is no time for any games," Tusk said.

Greek officials said Tsipras, who returns from a visit to Russia on Saturday, would spend the weekend preparing Greece's position at the summit but the pressure on his government is coming at least as much from the banks as from the lenders.

Withdrawals have picked up to reach about 4.2 billion euros this week, with some 1.2 billion euros pulled out on Friday alone as dire headlines accelerated the run, bankers said.

"Today was a more difficult day compared to yesterday," one banker said. "Monday will likely be tough as well."

Officials said the ECB would review the ELA emergency liquidity limit again on Monday night after the emergency summit in Brussels, with the prospect looming of capital controls being imposed on Greek banks if the situation continues to worsen.

Greece is on course to default on a 1.6 billion euro debt repayment it must make to the International Monetary Fund on June 30 unless the creditors resume funding.

Tsipras nevertheless exuded confidence and calm, going ahead with a planned meeting with Russian President Vladimir Putin on the sidelines of an economic conference in St Petersburg.

"There will be a solution based on respecting EU rules and democracy which would allow Greece to return to growth in the euro," Tsipras said in a statement issued by his office.

Russia played down any possibility of Russian financial aid for Greece. Asked if Putin and Tsipras had discussed the issue, Kremlin spokesman Dmitry Peskov said: "No, no, no."

Germany, the biggest contributor to the European bailout loans, held out hope on the chance of a deal at Monday's summit. "It's not too late for this and of course we hope that such an agreement is possible," government spokesman Steffen Seibert said in Berlin.

But Finance Minister Wolfgang Schaeuble, who has taken a hard line with Athens, was less optimistic. "I'm not sure I'll be able to announce anything sensational or new on Monday," he told reporters.

Greek Prime Minister Alexis Tsipras (C) speaks with Greek expatriates in frot of the statue of Russian-born founder of modern Greek state Ioannis Kapodistrias in St. Petersburg, Russia, June 19, 2015.Maxim Shemetov

Central Bank Reassures

The Greek central bank - which has warned that the country's future in the euro and even in the EU is at risk unless the government strikes a deal with its creditors - tried to assure savers that the banking system remained stable.

Money has been seeping out of the banks since Greece first had to take a bailout from euro zone governments and the IMF in 2010. But after a relative lull, withdrawals have risen in recent months, and accelerated sharply this week.

The ECB has been gradually raising the amount of emergency funding which is available at the Bank of Greece but the tempo has picked up as the crisis deepened. Earlier this week the limit was raised by 1.1 billion euros to 84.1 billion.

With his anti-austerity government refusing to accept the creditors' demands for pension reform and budget cuts, some anxious Greeks have been emptying their bank accounts. They fear that Athens will curb withdrawals under a capital controls regime, as Cyprus did during a crisis in 2013.

Slideshow (4 Images)

"It will be tough for a period of time, that's for sure," said 55-year-old Athens resident Eleni Leonida as she took money out of a cash machine. "We are entering into a new era that is uncharted territory for me, it is completely unknown."

Greek central bank chief Yannis Stournaras tried to shore up confidence. "The governor of the Bank of Greece confirms the stability of the banking system, which is fully secured by the joint actions of the Bank of Greece and the European Central bank," the bank said in a statement.

Stournaras drew fire from government supporters this week when the bank said in a report that failure to reach an agreement would "mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and, most likely, from the European Union".

Greece faces becoming the first euro zone member to default. Tsipras's government has refused the creditors' demands that it raise taxes and cut spending, particularly on pensions, saying this would deepen one of the worst economic depressions of modern times.

He is insisting the creditors must agree on debt relief for Greece as part of any deal. Berlin and its allies say any debt restructuring can be considered only once Athens completes its existing bailout program and receives the remaining funds.

No Signs of Panic

So far, there have been no queues forming outside bank branches. "There are no lines or panic, it has been a quiet and gradual phase of withdrawals," said one of the bankers who disclosed the figures for withdrawals.

A government spokesman has denied plans for imposing capital controls to limit cash withdrawals and capital transfers abroad.

While fears of general disruption and chaos have grown in recent days, Greece's biggest oil refiner Hellenic Petroleum (HEPr.AT) told Reuters it has in place a contingency plan to ensure Greece has enough fuel supplies for several months in case of a national emergency.

Although fed up with years of austerity, the majority of Greeks want to stay in the euro zone. Thousands took to the streets on Thursday night calling for a deal.

"The silent majority has spoken: we are staying in Europe," the conservative Greek daily Eleftheros Typos said, commenting on the rally.

Additional reporting by Angeliki Koutantou, Robin Emmott, Michael Nienaber, Caroline Copley and Paul Carrel, John O'Donnell, Denis Dyomkin, Renee Maltezou and Lefteris Papadimas; Writing by Matthias Williams, David Stamp and James Mackenzie; Editing by Paul Taylor and Sophie Walker

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