February 12, 2015 / 3:45 PM / 4 years ago

ECB's Nowotny: Greek banks can get funding even if deal not agreed

PRAGUE (Reuters) - Failure to agree an aid-and-reform program would not automatically close the door to funding for Greek banks and they could return to normal European Central Bank (ECB) borrowing if a deal is done, ECB Governing Council member Ewald Nowotny said on Thursday.

Standard funding for Greek banks was suspended last week when the ECB canceled its acceptance of Greek bonds as collateral, shifting the burden of funding banks through emergency liquidity assistance (ELA) from Greece’s central bank.

The ECB has authorized the Greek central bank to disperse 65 billion euros ($74 billion) to Greek banks under ELA, people familiar with the matter have told Reuters.

Nowotny declined to say exactly what would happen if there was no agreement with Greece.

But, asked if a lack of agreement would cut off the ELA program automatically, leaving Greek banks with a liquidity shortage, he said: “No, definitely not.”

Asked about conditions that would let Greek banks return to standard funding mechanisms direct from the ECB, he told Reuters: “That had been quite clearly defined, that means there is another program that is agreed with all partners, it means with the European Commission, the IMF and of course with the Greek government.”

“I think if there is the new agreement then I think we would be able to return to the old system, because the old system was under the condition of having an active program in place,” he said on the sidelines of a business seminar in Prague.

Nowotny said that in the meanwhile, the ECB’s authorization for the ELA emergency funding would be decided upon periodically, with the next decision due at the ECB’s next governing council meeting. The council next meets on Feb. 18.

“We all expect there will be ... a solution, it makes no sense to speculate (now),” Nowotny said.

Editing by Michael Shields and Louise Ireland

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