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Greek debt crisis: ECB not raising funding limit

Author: BBC
Greece has called a referendum on the terms it was being offered by creditors

The European Central Bank says it not increasing its emergency funding for Greek banks, amid fears that Greece may default on its debts on Tuesday.

The decision not to raise the cap on aid to Greece increases the likelihood of bank closures and restrictions on cash withdrawals, analysts say.

That in turn could eventually result in Greece leaving the euro.

The ECB said that it stood ready to review the decision and would work closely with the Bank of Greece.

The current ceiling for the ECB's emergency funding - Emergency Liquidity Assistance (ELA) - is €89bn (£63bn). It is not clear if all that money has been disbursed.

Those funds are used by banks to provide cash to depositors who want their money back.

The ELA decision may mean Greek banks do not open on Monday to prevent a run ahead of the imposition of capital controls, BBC economics editor Robert Peston says,

That would be a significant step towards Greece leaving the euro, though it would not make it inevitable, he says.

Queues continued to build outside some ATMs in Athens on Sunday, but cash was readily available at many of them.

Greece's finance ministry said the country's financial stability council would meet later on Sunday to consider the situation.

Asked if capital controls were now inevitable, Greek Finance Minister Yanis Varoufakis told the BBC: "This is a matter that we'll have to work overnight on, with the appropriate authorities both here in Greece and in Frankfurt."

The ECB's move comes at the end of a turbulent week of negotiations between Greece and its creditors.

On Saturday, eurozone finance ministers refused a Greek request to extend Greece's current bailout beyond 30 June, the same day that Greece has to make a payment of €1.6bn to the International Monetary Fund (IMF).

Without new funds, Greece risks defaulting.

Greece and its creditors had been locked in talks over fresh bailout money on Friday when the Greek government broke off discussions to call a surprise referendum for 5 July over the terms it was being offered.

It described the terms as "not viable", and asked for an extension of its current deal until after the vote was completed.