AFP: All eyes were on the European Central Bank (ECB) yesterday following the resounding ‘No’ in the Greek referendum, with the ECB seen as the only institution capable of calming market panic and preventing the Greek economy from collapsing.

In the final tally early yesterday, 61.31 percent of Greeks had rejected creditor demands for further austerity in return for more bailout funds, sending Greece’s eurozone partners scrambling to respond and European stock markets tumbling.

Until now, the ECB has agreed to keep Greek banks -- and, by extension, the debt-wracked Greek economy afloat -- on life support via the eurozone’s Emergency Liquidity Assistance or ELA facility.

But the overwhelming ‘No’ vote has made the ECB’s position far more difficult.

“Without a clear prospect of an immediate bailout deal that could prevent a full-scale sovereign default after Greece’s de facto default on the International Monetary Fund (IMF) last week ... it is very hard for the ECB to authorise continuing emergency support for Greek banks, let alone to allow an increase in such support,” said Berenberg Bank economist Holger Schmieding.

Among the flurry of meetings by European policymakers to decide how to respond to the referendum, ECB President Mario Draghi was scheduled to talk via telephone conference with EU Commission chief Jean-Claude Juncker, Eurogroup head Jeroen Dijsselbloem and the head of the European Council Donald Tusk yesterday morning.

Draghi would then chair a meeting of the ECB’s governing council later in the day to discuss ELA, after the Bank of Greece requested that the ELA ceiling be lifted.

“While politicians in the eurozone are preparing for possible new talks, it is once again up to the ECB to do the dirty work,” said ING DiBa economist Carsten Brzeski.

“The ‘No’ has not made the ECB’s life any easier. With every step that Greece is moving closer to total default or even a Grexit and Greek banks are losing deposits, it will be harder for the ECB to label Greek banks as solvent, and thereby eligible for ELA,” Brzeski said.

In Paris, French Finance Minister Michel Sapin insisted that the ELA “cannot be lowered.”

ELA is currently the only source of financing for Greek banks, and therefore the Greek economy. But with Greece’s bailout programme now officially expired and no new programme on the table, the conditions for ELA to be kept open are no longer fulfilled.

The ECB defines ELA as support given by eurozone national central banks in “exceptional circumstances and on a case-by-case basis to temporarily illiquid institutions and markets”.

If there are no euros in the banks, then Greece may be forced to introduce a parallel currency with which to pay its bills.

“How do they plan to pay salaries? How do they plan to pay pensions? Only at the moment where somebody introduces a new currency does he exit the eurozone,” European Parliament president Martin Schulz said on Sunday.

For the Frankfurt-based ECB, a break-up of the eurozone would be the worst possible scenario and it has pulled out all the stops so far in a bid to prevent it.
But some of its governing council members believe that constantly violating the single currency’s rules, as Greece is perceived to have done, is just as destructive.

For that reason, the head of the German central bank or Bundesbank, Jens Weidmann, has consistently voted against ELA in recent weeks. And support for his hardline stance could grow on the ECB governing council.

A two-thirds majority would be needed on the 25-seat board to shut down ELA.