February 15, 2015 / 11:02 PM / 5 years ago

ECB's Praet: may need flexibility on emergency funding in a crisis

BERLIN (Reuters) - The emergency central bank funding being provided to Greek banks is temporary, but flexibility on how long it lasts may be necessary during a ‘systemic crisis, ECB policymaker Peter Praet said.

Praet, the European Central Bank’s chief economist, told Portuguese newspaper Jornal de Negócios that it was “a topic for politicians to discuss” what was needed from the Greek government.

Greece’s finance minister meets his euro zone peers and ECB President Mario Draghi on Monday to discuss how to proceed with his country’s bailout program, which runs out on Feb. 28.

The ECB has control over the Emergency Liquidity Assistance (ELA) on which Greek banks now depend. The solvency of Greece’s banks is tied closely to that of the state, which needs the funding tied to its bailout program.

A failure to agree a deal for Greece could accelerate deposit outflows from Greek banks, which have increased as EU negotiations have stalled. Should the banks become insolvent, the ECB would have little choice but to cut off the ELA supply.

Asked whether ELA could be extended for months, Praet said it “can only be temporary and can be given only to solvent banks,” but he then added: “When you have a systemic crisis, you may need flexibility in terms of duration.”

Asked whether a country being cut off from ELA would be cut out of Europe’s monetary union, Praet replied: “ELA is provided to banks, not to countries. And I will not comment on speculative scenarios. We are not in that situation.”

Writing by Paul Carrel; Editing by Larry King

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