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In a bid to keep markets calm, the European Central Bank made a tough choice when it opted to keep open the financial lifeline to Greek banks at the weekend, analysts said today.
But it faces an even tougher decision later this week, when it convenes again to discuss whether to continue to provide liquidity after the official expiry of Greece's bailout programme tomorrow, analysts said.
After talks between Athens and its creditors broke down, leaving Greece headed for an EU-IMF default and possible exit from the eurozone, the ECB said yesterday it would keep open Emergency Liquidity Assistance (ELA) to the debt-hit country's banks.
Significantly, however, as anxious citizens lined up to get cash from bank machines, the ECB decided not to increase the liquidity, even if it said it could reconsider that decision at any time if the situation warranted.
The ECB's governing council is scheduled to meet again on Wednesday.
The rapid escalation of the Greek crisis, and the looming prospect of a possible "Grexit" -- or Greek exit from the eurozone -- sent global markets tumbling today as Greece ordered its banks to shut for a week and imposed capital controls.
Stocks in Frankfurt and Paris shed more than four per cent. The Athens market is shut until July 7.
The ECB has been the lifeline keeping Greek banks -- and by extension the Greek state -- afloat with the ELA emergency cash through five months of tortuous negotiations that have now taken a sharp turn for the worse.
Locked out of the ECB's regular refinancing operations, Greek banks' sole source of liquidity is the costlier ELA facility.
While analysts said the ECB would not shut down the liquidity pipeline completely until the outcome of Greece's referendum is known next Sunday, the decision not to increase the volume of cash would turn up the heat on Greece.
