The European Central Bank capped the amount of emergency funding it is providing to the Greek banking sector at €88.6 billion on Wednesday, in a sign that the central bank is awaiting the outcome of this weekend's crunch talks on Greece before deciding whether to extend a further financial lifeline to the indebted country.
The decision by the bank not to raise the ceiling of emergency liquidity assistance (ELA) it is providing to Greek banks, effectively prohibits the Greek banks from reopening. The ECB is expected to review its provision of ELA again on Monday.
Earlier, ECB governing council member Christian Noyer said that Sunday represented Greece's "last chance" to avoid a catastrophe. If "there is no more political accord in sight for a programme, then our rules force us to stop completely," he told French radio. "We're starting to be very worried. We can see the disaster coming if no decision is taken."
As Greece submitted an official request to the European Stability Mechanism (ESM) for a three-year bailout on Wednesday, senior officials representing euro zone finance ministers held intensive talks throughout the day, though an expected conference call of the bloc’s finance ministers did not take place. Further negotiations at official level are expected on Thursday, with euro zone finance ministers expected in Brussels to sign off on any deal on Saturday.
Greece has been given a deadline of midnight tonight to present "comprehensive" details on its reform proposals to creditors, which are expected to outline the government's proposals on pension and tax reforms. Officials from the European Commission and other creditor institutions will then assess the proposals, a European Commission spokeswoman said on Wednesday, before they are sent to the Eurogroup of finance ministers for consideration.
While the one-page bailout application submitted to the ESM on Wednesday by Greek finance minister Euclid Tsakalotos signalled that Greece is prepared to being implementing reforms as early as next week, it did not specify the nature of the pension and tax reforms under consideration. The letter also references the question of Greece’s debt sustainability. “As part of broader discussions to be held, Greece welcomes an opportunity to explore potential measures to be taken so that its official sector related debt becomes both sustainable and viable over the long term,” the letter states.
Despite indications that debt reprofiling could form part of a third bailout package for Greece, German chancellor Angela Merkel said on Tuesday night that a debt haircut was "out of the question". However, US treasury secretary Jack Lew said that any deal for Greece needed to address the issue of debt sustainability and he welcomed the IMF's call last week in a report on Greece for debt relief for the country in order to address its "unsustainable debt".
Addressing the European Parliament in Strasbourg on Wednesday, Greek prime minister Alexis Tsipras defended his party's handling of the crisis and pledged to present "new concrete proposals, credible reforms, for a fair and viable solution" by the end of this week, although he did not specify what reforms would be tabled.
He told MEPs that Sunday’s referendum result had given the Greek government a mandate to secure “a socially just and economically sustainable solution” to the crisis. However, he also said his government was committed to implementing reforms. “Let me assure the house that, quite apart from the crisis, we will continue with our reform undertakings,” he said.
Greece voted on Sunday to reject the terms of the country's bailout arrangements with creditors, more than five months after Syriza was elected to government. The country has been out of a bailout programme since June 30th when its latest programme expired.
European Council president Donald Tusk told the European Parliament that both sides now had a final chance to secure a deal. "This is really and truly the final wake-up call for Greece but also for us, our last chance," he said.
The head of the EU body representing member states convened a summit of all 28 EU leaders for Sunday, but warned that an inability to find agreement “may lead to the bankruptcy of Greece and the insolvency of its banking system”. “I have to say loud and clear that the final deadline ends this week. All of us are responsible for the crisis and all of us have a responsibility to resolve it.”