European Central Bank policymakers decamp to Cyprus on Wednesday wrestling with the uncomfortable fact that they may hold the keys to Greece’s continued membership of the euro.
With no political appetite for a ‘transfer union’ that could see wealthier countries subsidize Greece, the central bank figures prominently among the main options for staving off an impending funding crunch in Athens.
This is awkward for the ECB, an independent central bank desperate to stay out of the political debate over Greece’s future but whose lender-of-last-resort function may leave it as the only institution able to stop an economic collapse there.
“The ECB is justified in being cautious because of the highly political exposure,” said Richard Portes, professor of economics at London Business School, noting that the bank has just completed a sensitive, political debate over a sovereign bond-buying plan.
After that debate, the ECB sought to remove itself from the political firing line. Observing its rules strictly, the ECB cut off Greek banks from its funding after Athens abandoned its bailout program, a condition for access to the ECB funds.
The move forced Greek banks onto emergency liquidity assistance (ELA) from their national central bank — a temporary facility that raised the pressure on governments to find a political solution before the banking sector tipped into crisis.
ECB President Mario Draghi defended the move in an at-times heated exchange at the European Parliament last week, telling lawmakers: “The ECB had no choice”. The discussion illustrated the ECB’s sensitivity to the Greek question.
