ECB emergency funds to Greece directly tied to health of its banks: Dombret

By Andrea Hopkins

TORONTO (Reuters) - The provision of European Central Bank emergency liquidity to Greece is "directly correlated" to the health of its banks and will continue as long as the preconditions are met, a top policymaker from Germany's Bundesbank said on Tuesday.

Bundesbank board member Andreas Dombret declined to say how the ECB should respond if Greece defaulted.

"Clearly, the state of the [country] of Greece is very important for the emergency liquidity and also the state of the banks in Greece. There is a direct correlation," he told a business school audience.

"There are clear rules in the euro system about emergency liquidity assistance and the ECB and the euro system will support Greece as long as Greece fulfils the requirements for that," Dombret added.

The ECB is providing 110 billion euros of liquidity to the country and its banks. On Monday, ECB Vice President Vitor Constancio said a country that defaults would not have to leave the euro.

As it stands, the central bank is approving an ever-growing amount of emergency funding for Greece's lenders, and Europe's central bankers must consider under what circumstances the funding will continue.

Dombret said that, so far, Greece was meeting its obligations for the emergency liquidity.

"The requirement for that is that there is a request by the Greek national bank for emergency liquidity and that this request is being granted by the governing council and that this only goes to solvent banks," he noted.

(Reporting by Andrea Hopkins; Editing by Phil Berlowitz and Alan Crosby)