All eyes on ECB after 'No' vote

A day after Greek voters squarely rejected the notion of trading unpopular economic reforms for more bailout money, the onus of buying more time for European politicians to come up with a solution to the Greek debt crisis seemed to fall on one institution: the European Central Bank.

A lender of last resort for Greece's beleaguered banking sector, the ECB has been doing everything in its power to prevent the euro from unraveling. This has meant keeping Greece's debt-stricken banks - and, by extension, the country's fragile economy - afloat by extending them a lifeline of emergency credit.

But on Monday it was uncertain whether that assistance could continue or whether the ECB would be left with no choice but to pull the plug on its emergency funding for Greek lenders.

That money, known as Emergency Liquidity Assistance, or ELA, has so far been predicated on the - at times admittedly bleak - hope that Athens could still reach a deal with its creditors to prevent the country from running out of money and going bankrupt.

'The banks are bleeding out'

Sunday's 'No' vote did little to strengthen that hope. The final tally showed 61.31 percent of Greeks opposing creditor demands for more austerity, which the country's lenders have demanded in exchange for more loans.

Now the ECB's governing council must decide whether to keep pumping money into a system that is teetering on the brink of bankruptcy or cutting it off completely - and subjecting the bloc to whatever dramatic consequences may follow.

Frankly, it may not have a choice.

The ECB is bound by its legal framework to not lend to banks that are not solvent. Greece is due to repay 3.5 billion euros ($3.8 billion) to the ECB on July 20. Analysts have said defaulting on that payment would almost certainly mean the ECB would stop giving Greek banks access to ELA.

"A sovereign default would drag the banks down into the abyss and the ECB is not legally permitted to lend to insolvent banks," said Jörg Krämer, Commerzbank's chief economist in an interview with DW. "Things are about to get very tight in the next few days. The banks are bleeding out."

Both sides remain far apart

To decide on whether to inject more emergency funding into Greece's banks, ECB chief Mario Draghi held a conference call with high-ranking European leaders on Monday morning, including European Commission President Jean-Claude Juncker, Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem and European Council President Donald Tusk.

That level of coordination suggested that the ECB would likely be taking its lead, if not its marching orders, from euro-area politicians.

Experts have also said it was unlikely that the ECB would cut off ELA as long as there was even the slightest prospect of a deal between Greece and its creditors.

Other high-level meetings were also due to take place in the wake of Sunday's referendum. German Chancellor Angela Merkel flew to Paris to meet with French President Francois Hollande and Greek Prime Minister Alexis Tsipras spoke to Draghi, Merkel and Hollande in separate phone calls and agreed to discuss new proposals on Tuesday on how to keep the country in the euro. An emergency eurozone summit was scheduled for Tuesday.

Patience wearing thin

But there is still much air between both sides' positions and Sunday's referendum did little to change that.

Many European governments' patience with Athens has already worn thin, perhaps most notably in Germany, where polls have suggested that more than half of Germans would be comfortable with Greece giving up the euro.

A spokesman for the German government said Monday that Berlin respected the "clear 'no' vote" against austerity, but added that the conditions were not in place for negotiations on a new aid program because Greek voters had shown they were against the principle of cash-for-reforms.

Otmar Issing, a former ECB chief economist from Germany, told DW in an interview that Greece had failed to recognize the "extreme effort" by the other 18 countries that use the euro.

"I'm not worried about the stability of the euro," Issing said. "I'm worried about the composition of the euro area, about rules which were neglected time and again and massively violated by Greece."

Crunch time

While political leaders try to strike a deal, Greek banks are reportedly only days away from running out of cash. Banks across the country remained closed for a sixth working day and limits on ATM withdrawals remained in place to staunch capital flight. Athens had originally said the banks could reopen on Tuesday, July 7, but there has been speculation that they may remain closed for even longer if the ECB doesn't let Greek banks tap more funds - something analysts think the central bank is unlikely to do.

The Reuters news agency cited people familiar with ECB policy as saying that the central bank would likely reject a request from Athens to raise the cap on ELA funding and leave the limit unchanged at 89 billion euros ($80.5 billion), adding pressure to the Greek government to forge a deal before its banks go bust.

"Tsipras must make clear to his people that there are only 15 days left until the cutoff date on July 20," said Jens Bastian, a financial adviser based in Athens. "By then, there needs to not only be negotiations but also an agreement that includes a bridge loan."

While some major banks have said they now see a Greek exit from the eurozone as the most likely scenario, markets either don't seem to be 100 percent convinced of this or they have factored in a possible "Grexit."

The euro fell against the dollar on Monday and European stocks and bonds were also down, but the damage was contained and there was no indication that Greece's troubles would spill over into other European economies.