Greece’s economy is living on borrowed time—particularly if you believe the old adage that time is money. That’s because Greek banks have for months been relying heavily on what is called “emergency liquidity assistance” from the European Central Bank for just more than 80 billion euros ($90 billion). Otherwise known as ELA, emergency liquidity assistance is a loan program available for national banks in distress, allowing access to cash at an interest rate set by the ECB’s Governing Council.
“It’s a bit like printing euros for that one national bank,” said Donald Luskin, chief investment officer at TrendMacro, who points out the loan comes at a higher interest rate since it’s often backed by the flimsiest of notes. “But ELA doesn’t come as an obligation or a risk of the Eurosystem.”
All of the risk falls on Greece if the loan can’t be repaid, unlike normal circumstances when a country has adequate collateral to offer and can receive a loan from the ECB at a lower interest rate.
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