The money pump (sentences to ponder)

Let’s say the run on Greek banks continues or accelerates.  Then this sentence will become more relevant:

Importantly, Greek banks ONLY run out of Euros if the ECB can justify a shut down in funding to the BoG ELA facility or the Greek banks directly.

In other words, the ECB has to pull the plug at some point or simply finance Greece ad infinitum.  Read the whole thing, ignore the hyperbole toward the end, and study up on brinksmanship.

Here is a useful discussion of ELA [Emergency Liquidity Assistance], excerpt:

ELA is a subject on which the ECB is deeply reluctant to provide information – even on where or when it is provided.

“You don’t say when you are in an emergency situation, because then you make the situation worse. So I really don’t see the usefulness of being more transparent,” Luc Coene, Belgium’s central bank governor, explained in a Financial Times interview this month.

And here is yet further detail, excerpt:

Some of Europe’s central bankers are nevertheless no longer willing to allow themselves to be endlessly tapped for cash. Belgian Luc Coene has already openly warned that even the ELA payments must “absolutely” be stopped if the Greek banks are actually hopelessly bankrupt, and not merely illiquid.

If you read through these sources, it will help answer the question — which I receive frequently — “why can’t Greece default and yet not leave the eurozone?”