The ECB has increased its backdoor support for Greece during the recent crisis, according to Bank of Greece statistics. Lending by the central bank to the domestic banking system rose by €12.5 billion in February to a record €59.8 billion – see first chart. Banks used the cash partly to buy an additional €2.7 billion of Greek government bonds and cover a €3.3 billion withdrawal by domestic private depositors.

A key component of the Greek rescue plan agreed yesterday was the confirmation by ECB President Trichet that the central bank will continue to accept collateral rated down to BBB- in its lending operations beyond year-end. This represents a defeat for Bundesbank-led ECB hawks who wanted to return the minimum rating to its pre-crisis level of A-, thereby cutting Greece adrift in the event of Moody's downgrading its rating to match S&P and Fitch, both at BBB+.

The success of the plan may hinge on whether it stems the incipient run on Greek banks. Private deposits have fallen by €8.4 billion, or 3.5%, since December as EMU exit worries have mounted – second chart. The Bundesbankers may have been forced to agree to keep Greece's life support switched on in return for IMF participation in the rescue deal but could baulk if backdoor lending continues to balloon.