An undignified game
There's no doubt about it - Greek banks are being drip-fed by the ECB. For months, its bankers have provided them with so-called Emergency Liquidity Assistance (ELA) loans.
Without them, the banks - and, by extension, Greece - would likely be bankrupt. On Monday, the ECB decided to maintain that emergency assistance at its June 26 level, estimated at around 89 billion euros ($97.2 billion).
This makes the ECB's bankers the key players in Greece's financial crisis. The ECB is currently the only institution preventing a Grexit, and it is the only institution that can trigger it too.
If a two-thirds majority of the ECB's governing council voted in favor of ending the loans, Greek banks would not be able to refinance. It would be the beginning of the end.
Legal doubts
But the real question is whether the ECB, as a non-elected but supposedly independent body, should even be in such a key position.
Opposition to further ELA loans for Greece has come primarily from Germany, where the president of the Bundesbank, Jens Weidmann, has apparently voted against extending emergency credit to Greece several times.
And for good reason! The loans can be classed as a form of indirect state financing, which the ECB is, quite sensibly, not allowed to provide.
Hans-Werner Sinn, the president of the Ifo institute, a leading German economic think tank, has gone a step further. He says the emergency assistance to Greece by the ECB is tantamount to delaying an insolvency filing by Athens, which is an offense under German law.
Sinn is right. Everybody knows that Greece and its banks are bankrupt. The idea behind the ELA credits was that the only one liable for the loans was the Greek central bank. But it can only guarantee up to 41 billion euros based on its current equity, yet it has already spent some 89 billion euros.
The ECB's bankers are in a very uncomfortable position indeed. Many believe they have been forced into their role. They feel compelled to approve the ELA loans until given some kind of signal from Brussels on how to proceed in this crisis.
At the moment, they are still waiting. We've seen countless summit where nothing has been decided. What has happened to the institution that was once modeled on Germany's Bundesbank? The goal was to create an independent body, focused on maintaining a stable currency, without engaging in any kind of currency manipulation or measures to stimulate the economy.
The ECB and its current head, Mario Draghi, have bent the bank's original rules so much that state financing and helping to delay an insolvency filing now look normal and legitimate.
It started five years ago when the ECB started buying Greek bonds - unthinkable at the time. Since then, it has not been able to shake of a whiff of illegal state aid.
End in sight
But it will have to come to an end. The ECB can't buy time for politicians forever - time that those politicians then proceed to waste listening to and being blinded by the poker players in Athens.
Despite the banks being closed and capital controls in place, experts say that up to 250 million euros daily still come out of Greek banks. Should the banks open again, anything short of a mass run on the banks would be a miracle.
Even if the banks manage to hang in there until July 20, Greece will still have to pay back the ECB 3.5 billion euros in expired bonds on that day. If Athens fails to pay up, the ECB will be forced to declare Greece bankrupt.
Greek bonds would officially be worthless and could not be used as collateral for ELA loans, which the ECB would then have to demand back.
In short, the ECB has allowed itself to be demoted to a handyman for politicians in Brussels, Athens, Berlin and Paris, who use it to buy time. These are politicians who are apparently unable to solve the problems of a country that contributes less then 2 percent to the total GDP of the eurozone.
It is an undignified game.