European Central Bank considers reducing aid to downward spiraling Greek economy

Emergency Liquidity Assistance (ELA) to Greece is being scrutinized by the European Central Bank (ECB) as they becomes more concerned with with the troubled state of Greek lenders. According to the Hellenic Shipping News, the adjustments will take place if the ECB can’t be convinced that the economy has a chance of rebounding, and that bailout funds can be procured.

Greek stocks fell on the news. The euro overall dropped o.5 per cent while the FTSE-Athex Banks index of Greece dropped 6.8 per cent.

The Cental Bank of Greece has around 74 billion Euros that are being utilized for lending. Meanwhile they have been, for the most part, shut out of ECB financial aid. Greek government officials are meeting this week with their euro-area allies in Latvia in the next few days in an attempt to free up ECB funding.

The Latvian meeting is seen as an opportunity for Greece to demonstrate that they are ready to go along with the economic reforms to which they agreed in order to procure a 2012 aid package. If they are unwilling to bend on meeting the economic reform terms, the final portions of the 2012 package will not be paid. This sets up the possibility of the Greek Government being broke as early as May.

All concerned agree that the situation is troubling. Vitas Vasiliauskas, a member of the Governing Council said in an interview on April 18,

“The situation in Greece means that we should have a limit until summer for ELA. Everyone understands what ELA means; it’s a temporary measure to give the banks liquidity.”

Vasiliauskas’ statement are similar to the sentiments coming from France, Germany the U.S. and many other countries.