The European Central Bank’s governing council was meeting on Sunday to decide whether to keep disbursing emergency loans to Greek banks, a decision that could set off a period of turmoil in the country as it prepares for a bailout referendum next weekend.
Whatever choice the ECB makes, one thing has become clear: It can’t stay on the sidelines much longer.
“The ECB in particular is facing an immense dilemma,” said Beat Siegenthaler, global macro adviser at UBS.
The eurozone rejected a Greek request for a one-month extension to its bailout Saturday, meaning the country is now set to default on its €1.55 billion payment to the International Monetary Fund on Tuesday.
Yet any move to tighten the screws—by, for instance, raising the haircuts on Greek banks’ collateral—could accelerate Greece’s slide toward damaging capital and deposit controls.
“The ECB has a very delicate decision to take and will most probably seek guidance from the political side,” said Mr. Siegenthaler.
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