The European Central Bank has become used to being vilified over the past few years. Yet its decision this week to require Greek banks to obtain liquidity from the country’s own central bank rather than the ECB is far less aggressive than it looks.
Rather than a declaration of economic war, it represents the ECB removing itself from a decision about whether to keep Greece afloat while its new government tries to negotiate with the European authorities. This step was perfectly understandable. Decisions about Greece’s future in the eurozone should be taken by politicians, not by central bankers.
The ECB’s decision removes the waiver that permitted low-grade bonds to be used as collateral in the Eurosystem. But Greek banks can continue to fund themselves from Greece’s central bank through the Emergency Liquidity Assistance (ELA) programme.
The ECB has let go of one of the ropes by which Greece is dangling from the cliff edge. To drop the other by removing permission for the Bank of Greece to operate the ELA would send Greece plunging, at the very least to a Cyprus-style outcome with capital controls and at worst out of the eurozone altogether.
This is clearly not a decision in which the ECB wants to or should take the lead. The ECB is involved in the lending “troika” managing the response to the euro crisis mainly because the other two members — the IMF and the European Commission — do not have remotely enough financial firepower.
But the ECB is not the principal judge of whether Greece is adhering to its bailout programme. That programme, especially the technical structural policy including privatisations and reform of the tax-collecting system, should mainly be assessed by the IMF and eurozone governments. Those institutions should also take the decision on what relief to grant Greece on its debt stock and primary fiscal surplus target in return for reform.
The ECB’s announcement should be read as a clear signal to politicians that they should now step forward. Certainly, the central bank can decide to keep Greece afloat until the programme is amended or an entirely new one agreed. Beyond that, it should stand on the edge of the conversation.
These negotiations have not started well. One obvious problem is the lack of clarity about interlocutors on both sides. Syriza’s government has given mixed messages in its first 10 days in office, first appearing to abrogate the existing bailout programme and then rowing back. Yanis Varoufakis, the finance minister, has adopted a high profile, but his statements sometimes seem at odds with those from Alexis Tsipras, the prime minister.
For their part, the eurozone member governments have always had difficulty co-ordinating policy. Jeroen Dijsselbloem, the Dutch minister and current chair of the eurogroup of finance ministers, has his own strongly sceptical views about Greece’s role in the euro, which do not necessarily reflect majority eurozone opinion.
These problems need to be resolved quickly. Fumbling around for months deciding who can talk to whom and under what circumstances could end in disaster. It is in the ECB’s power, barring a complete collapse in the Greek banking system, to keep Greece going. It should not be its role to decide whether the country remains in the eurozone. Syriza says it must respect its voters’ wishes, yet other eurozone governments have the same obligation.
With this action, the ECB has clearly signalled that big decisions should be taken by politicians. It is right to do so. Governments should muster the courage to take them.