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European shares were set to open higher on Tuesday as investors came to the conclusion that the markets were most likely over-sold and news emerged overnight of around 100 billion euros ($127 billion) of liquidity provided by the European Central Bank to the Greek central bank to prop up Greece’s financial system.
The UK’s FTSE was called higher by 38 points at 5342, Germany’s DAX was seen opening 35 points up at 5366 and France’s CAC was called 22 points higher at 3049.
Overnight, the Financial Times revealed that Greece’s banking system was being propped up by the emergency liquidity, approved secretly by the ECB. The ECB’s weekly statement on banks’ use of emergency liquidity assistance (ELA) showed a spike at the end of last month.
Analysts at Barclays now believe Greece is now using 96 billion euros in ELA, with Ireland accounting for another 41 billion euros and Cyprus 4 billion euros.
If correct, the total ELA in use has exceeded 140 billion euros – more than 10 per cent of the amount lent to euro zone banks in standard monetary policy operations.Such an amount would require the approval of the ECB’s 23-member general council because of the risk of increasing inflation as a result of providing extra liquidity above 50 billion euros.
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