FRANKFURT, germany — The European Central Bank said it will temporarily stop lending to some Greek banks to limit its risk as President Mario Draghi signaled that the ECB won’t compromise on key principles to keep Greece in the eurozone.
The Frankfurt-based ECB said Wednesday that it would push the responsibility for lending to some Greek financial institutions onto the Greek central bank until they have sufficiently boosted their capital.
“Once the recapitalization process is finalized, and we expect this to be finalized soon, the banks will regain access to standard Eurosystem refinancing operations,” the ECB said in a statement.
Greek banks locked out will have to tap the so-called Emergency Liquidity Assistance program via the Greek central bank, the ECB said.
The move comes after Draghi acknowledged for the first time that Greece could leave the monetary union. While the central bank’s “strong preference” is that Greece stays in the 17-nation eurozone, the ECB will continue to preserve “the integrity of our balance sheet,” he said in a speech in Frankfurt on Wednesday.
“A Greek exit was seen as an absurdity up to now,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “It is gradually becoming the main scenario. The ECB is prioritizing its balance sheet over monetary-union geography.”
Greece faces a fresh election June 17 that may boost parties opposed to the conditions of its bailouts, raising the specter of its exit.
European stocks dropped for a third day, to their lowest level this year, amid growing concern that Greece will be forced to quit the euro. The Stoxx Europe 600 Index slipped 0.6 percent to 244.4 at the close of trading. The gauge has tumbled 10 percent from this year’s peak March 16 amid continued political uncertainty in Greece. The euro was little changed at $1.2725.
The ECB can lend only to sound banks and, therefore, won’t allow undercapitalized institutions to access its refinancing operations, a eurozone official said on condition of anonymity.
