The European Central Bank is exploring measures to reduce the Emergency Liquidity Assistance to Greek banks, reports said Tuesday, citing people with knowledge of the discussions.
ECB Staff have suggested an increase in the haircuts banks take on the collateral they offer for emergency funding from the Bank of Greece, both Bloomberg and CNBC said.
The haircut implies the reduction made in the value of collateral assets while allotting a loan. The ratio is not made public. An increase in the haircut will reduce the amount of emergency funding that banks will receive in return for the security they offer as collateral.
The measure is yet to be discussed formally in the ECB's policy-making body, the Governing Council, reports said.
Early February, the ECB suspended the waiver extended to Greek public securities used as collateral by financial institutions for central bank loans. However, the bank later raised the support for Greek banks under the ELA scheme, which is costlier.
The ECB is also considering an "orderly default" as well as a "disorderly default" among other scenarios, the CNBC reported. The ECB Staff proposes haircuts of 75 percent in case of the former and 90 percent, if the latter materializes, the report added.
The Greek government ordered the country's public sector undertakings to hand over any cash they have in reserve to the central bank, reports said Monday. These funds, if sufficient, are intended to be used to meet a payment of nearly EUR 1 billion to the International Monetary Fund in May.
Figures from Eurostat on Tuesday showed that Greece had the highest government debt-to-GDP ratio in 2014. The ratio rose to a record 177.1 percent from 175 percent in 2013, well above the Maastricht treaty prescription of 60 percent.
The Alexis Tsipras government also faces the need for money to pay pensions and salaries. The country's borrowing costs keep rising amid worries that it will go bankrupt, which could lead to an exit from the Eurozone.
The press, economists and other observers have dubbed a voluntary, less tumultuous exit as 'Grexit' and a forceful, messy departure as 'Graccident'.
In the backdrop of all the gloom surrounding Greece, the meeting of the Eurozone finance ministers in Riga, Latvia on Friday has become crucial to the future of the single-currency region.
Analysts do not expect any remarkable announcement after the Riga meeting, pushing the weight further on to the next Eurogroup meeting on May 11, just a day ahead of the IMF re-payment.
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