In a bid to keep markets calm, the European Central Bank made a tough choice when it opted to keep open the financial lifeline to Greek banks at the weekend, analysts said on Monday.
But it faces an even tougher decision later this week, when it convenes again to discuss whether to continue to provide liquidity after the official expiry of Greece's bailout programme on Tuesday, analysts said.
After talks between Athens and its creditors broke down, leaving Greece headed for an EU-IMF default and possible exit from the eurozone, the ECB said on Sunday it would keep open Emergency Liquidity Assistance (ELA) to the debt-hit country's banks.
Significantly, however, as anxious citizens lined up to get cash from bank machines, the ECB decided not to increase the liquidity, even if it said it could reconsider that decision at any time if the situation warranted.
The ECB's governing council is scheduled to meet again on Wednesday.
The rapid escalation of the Greek crisis, and the looming prospect of a possible "Grexit" -- or Greek exit from the eurozone -- sent global markets tumbling on Monday as Greece ordered its banks to shut for a week and imposed capital controls.
Stocks in Frankfurt and Paris shed more than four percent. The Athens market is shut until July 7.
The ECB has been the lifeline keeping Greek banks -- and by extension the Greek state -- afloat with the ELA emergency cash through five months of tortuous negotiations that have now taken a sharp turn for the worse.
Locked out of the ECB's regular refinancing operations, Greek banks' sole source of liquidity is the costlier ELA facility.
While analysts said the ECB would not shut down the liquidity pipeline completely until the outcome of Greece's referendum is known next Sunday, the decision not to increase the volume of cash would turn up the heat on Greece.
- 'Overdue' decision -
The ECB decision was "overdue", said Commerzbank economist Joerg Kraemer.
By freezing the ELA lifeline at around 89 billion euros ($99 billion), the ECB central bank was forcing Greece to limit money flows to prevent its banking system from running out of cash, he said.
Observers said that with capital controls now in place, Greek banks would have sufficient liquidity until the referendum.
"Now, all hinges on the referendum. The eurogroup cannot push Greece out of monetary union before such a democratic vote. Therefore, the ECB did not terminate ELA but decided to keep it on Friday's level," Kraemer said.
Eurozone finance ministers and the ECB would be at pains to make it clear to Greek voters that if Greece is to remain a member of the single currency area it must accept the reforms its creditors are demanding, he added.
But if Greece votes "No" in Sunday's referendum, "the ECB would probably have the support of the head of governments and states to terminate ELA altogether," Kraemer said.
"This would de facto be the end of the euro membership of Greece," he added.
Berenberg Bank economist Holger Schmieding said the ECB "will do its utmost to contain the Greek risk, prevent contagion and protect the eurozone as a whole."
Back in 2012, ECB chief Mario Draghi made his famous pledge to do "all it takes" to save the euro. And that had shown that mere verbal intervention on the ECB's part could suffice to restore confidence, Schmieding said.
This time round, the ECB could see if words alone could again contain the market fallout from Greece.
"But if markets suffer too much for too long and if indicators of financial stress show major problems... the ECB would act," Schmieding said.
Eyebrows have been raised at the apparently open-ended nature of ELA to Greece.
The head of the German central bank, Jens Weidmann, for one, has been openly critical, arguing that Greek banks were not solvent and that the ongoing provision of liquidity was tantamount to monetary financing, or printing money to pay off a government's debt.
UniCredit economist Erik Nielsen saw the ECB's willingness to continue providing ELA as the final decision over whether Greece stays or leaves the eurozone.
"Of course, the Greek government can decide to leave, but knowing that that's political suicide, they won't make that decision. And while it's formally a technical decision whether to provide the ELA... that decision will not be taken without political cover at the highest level," Nielsen said.
"It is clear that Europe will keep the Greek boat afloat through the referendum, and rightly so," he added.