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The European Central Bank (ECB) has agreed to raise the emergency funding available to Greek banks to €68.3 billion.

The €3.3 billion increase in the so-called Emergency Liquidity Assistance (ELA) is critical for Greece’s banks.

Depositors have been taking savings out of the country, depleting the banks’ access to cash to lend.

However, the Greek central bank is said to have requested an additional €10 billion of emergency funding.

The ECB had already raised the amount available to Greek banks by €5 billion to about €65 billion last week.

The deal will give Athens breathing space to negotiate a loan deal with its European creditors.

Greece is asking the eurozone for a six-month extension of its European loan, a Greek government official said on February 18. It would not be a renewal of the current bailout agreement, which includes strict austerity measures.ECB Greek banks assistance

On February 16, Greece rejected a plan to extend its €240 billion bailout, describing it as “absurd”.

Greece is likely to run out of money if a deal is not reached before the end of February.

“We should extend the credit program by a few months to have enough stability so that we can negotiate a new agreement between Greece and Europe,” Greek Finance Minister Yanis Varoufakis told Germany’s ZDF.

Government spokesman Gabriel Sakellaridis confirmed that meant Yanis Varoufakis would be asking for a six-month extension to Greece’s current loan.

Gabriel Sakellaridis told Greece’s Antenna TV: “Let’s wait today for the request for an extension of the loan contract to be submitted by finance minister Varoufakis.

“All along deliberations are going on to find common ground, we want to believe that we are on a good path. We are coming to the table to find a solution.”

He added the Greek government would not back down on issues that it considered non-negotiable.

German Finance Minister Wolfgang Schaeuble dismissed the Greek proposal, telling broadcaster ZDF on February 17: “It’s not about extending a credit program but about whether this bailout program will be fulfilled, yes or no.”

An impasse over the selection of a new president triggered an early election last month that swept Syriza into government.

The Greek stock exchange rose 3% on Wednesday in morning trading in Athens as news of the loan extension application emerged, but later closed up just 1.1%.

The eurozone has given Greece until February 20 to decide if it wants to continue with the current bailout deal.

Greece wants to replace the bailout with a new loan that it says would give it time to find a permanent solution to the debt crisis.

On February 17, Greek PM Alexis Tsipras called for a vote in the Greek parliament on whether to scrap the austerity program on February 20, the same day as the eurozone deadline.

“We will not succumb to psychological blackmail,” Alexis Tsipras told parliament.

“We are not in a hurry and we will not compromise.”

JP Morgan claimed over the weekend that €2 billion worth of deposits was flowing out of Greek banks each week. It estimated that if that were to remain the case, they would run out of cash to use as collateral against new loans within 14 weeks.

The bank’s estimate is based on a calculation that a maximum of €108 billion of deposits is left in Greek banks.

The most up-to-date figures from the Greek central bank show deposits dropped 2.4% month-on-month in December to €160.3 billion from €164.3 billion, marking the third consecutive monthly fall.

Dutch Finance Minister Jeroen Dijsselbloem, who is also chairing the Eurogroup meetings of eurozone finance ministers, warned on Monday night there were just days left for talks.

Jeroen Dijsselbloem said it was now “up to Greece” to decide if it wanted more funding or not.

Greece has proposed a new bailout program that involves a bridging loan to keep the country going for six months and help it repay €7 billion of maturing bonds.

The second part of the plan would see Greece’s debt refinanced. Part of this might be through “GDP bonds” – bonds carrying an interest rate linked to economic growth.

Greece also wants to see a reduction in the primary surplus target – the surplus the government must generate (excluding interest payments on debt) – from 3% to 1.49% of GDP.

In Greece last week, two opinion polls indicated that 79% of Greeks supported the government’s policies, and 74% believed its negotiating strategy would succeed.

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There is more and more speculation that Greece is about to leave the euro.

Greece has been unable to form a government, and new elections seem set to give power to parties that reject the spending cuts that have been agreed with other eurozone governments and the International Monetary Fund.

But without those spending cuts, the Greek government will receive no more bailout loans, it won’t have the money to pay its debts, the Greek banks will probably go bust, and the European Central Bank may be forced to cut Greece loose from the single currency.

What would this mean for Greece and the rest of Europe?

1. Greek meltdown

Greece’s banks would be facing collapse. People’s savings would be frozen. Many businesses would go bankrupt. The cost of imports – which in Greece includes a lot of its food and medicine – could double, triple or even quadruple as the new drachma currency plummets in value. With their banks bust, Greeks would find it impossible to borrow, making it impossible for a while to finance the import of some goods at all. One of Greece’s biggest industries, tourism, could be disrupted by political and social turmoil.

In the longer run, Greece’s economy should benefit from having a much more competitive exchange rate. But its underlying problems, including the government’s chronic overspending, may not go away.

2. Bank runs

Ordinary Greeks may queue up to empty their bank accounts before they get frozen and converted into drachmas that lose half or more of their value. Depositors in other eurozone countries seen as being at risk of leaving the euro – Spain, Italy – may also move their money to the safety of a German bank account, sparking a banking crisis in southern Europe.

Confidence in other banks that have lent heavily to southern Europe- such as the French banks – may also collapse. The banking crisis could spread worldwide, just like in 2008. The European Central Bank may have to provide trillions of Euros in rescue loans to the banks. Some governments may not have enough money to prop up their banks with the extra capital needed to absorb losses and restore confidence; the banks could then go bankrupt.

Greece has been unable to form a government, and new elections seem set to give power to parties that reject the spending cuts that have been agreed with other eurozone governments and the International Monetary Fund

Greece has been unable to form a government, and new elections seem set to give power to parties that reject the spending cuts that have been agreed with other eurozone governments and the International Monetary Fund

3. Business bankruptcies

Greek businesses face a legal and financial disaster. Some contracts governed by Greek law are converted into drachmas, while other foreign law contracts remain in Euros. Many contracts could end up in litigation over whether they should be converted or not.

Greek companies who still owe big debts in Euros to foreign lenders, but whose main sources of income are converted to devalued drachmas, will be unable to repay their debts. Many businesses will be left insolvent – their debts worth more than the value of everything they own – and will be facing bankruptcy. Foreign lenders and business partners of Greek companies will be looking at big losses.

4. Sovereign debt crisis

Sovereign debt is the money a government borrows from its own citizens or from investors around the world. But if Greece leaves the eurozone, setting a precedent that such a thing can happen, then investors will become very nervous about lending to other struggling eurozone countries.

This could leave the governments of Spain and Italy short of money and in need of a bailout. These two huge countries together account for 28% of the eurozone’s total economy, but the EU’s bailout fund currently doesn’t have enough money to prop both of them up. Even France’s government could get into trouble if it needed to bail out its enormous banking sector.

5. Market turmoil

Nervous investors and lenders around the world may start selling off risky investments and move their money into safe havens. Stock markets may plunge. High-risk borrowers could face sharply higher borrowing costs, if they can borrow at all.

Meanwhile, safe investments such as the dollar, the yen, the Swiss franc, gold and perhaps even the pound would rise, while safe governments such as those of the US, Japan, Germany and even the UK could borrow more cheaply. And it’s not all bad news – the oil price may well fall sharply.

6. Political backlash

As eurozone governments and the European Central Bank face enormous losses on the loans they gave to Greece, public opinion in Germany may turn against providing the even larger bailouts probably now needed by big countries like Italy and Spain. The ECB’s role of quietly providing rescue loans to these countries in recent months would be exposed and could become politically explosive, making it harder for the ECB to continue to prop up their economies.

However, the threat of a meltdown might push Europe’s or the eurozone’s governments to agree a comprehensive solution – either dissolution of the single currency, or more integration, perhaps through a democratically-elected European presidency tasked with overseeing a massive round of bank rescues, government guarantees and growth-stimulating infrastructure investment.

7. Recession

Crisis-stricken eurozone banks may be forced to slash their lending. Businesses, afraid for the euro’s future, may cut investment. Faced with a barrage of bad news in the press, ordinary people may cut back their own spending. All of this could push the eurozone into a deep recession.

The euro would lose value in the currency markets, providing some relief for the eurozone by making its exports more competitive in international trade. But the flipside is that the rest of the world will become less competitive – especially the US, UK and Japan – undermining their own weak economies. Even China, whose economy is already slowing sharply, could be pushed into a recession.

8. Greek debt default

Unable to borrow from anyone (not even other European governments), the Greek government simply runs out of Euros. It has to pay social benefits and civil servants’ wages in IOUs (if it pays them at all) until the new drachma currency can be introduced. The government stops all repayments on its debts, which include 240 billion Euros of bailout loans it has already received from the IMF and EU. The Greek banks – who are big lenders to the government – would go bust.

Meanwhile, the Greek central bank may be unable to repay the 100 billion Euros or more it has borrowed from the European Central Bank to help prop up the Greek banks. Indeed, by the time Greece leaves the euro, the central bank may have borrowed even more from the ECB in a last ditch effort to stop the Greek banks collapsing.