ECB has a new thunder bolt for Athens | Business| Economy and finance news from a German perspective | DW | 27.03.2015
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ECB has a new thunder bolt for Athens

The European Central Bank is rumored to be about to cut a crucial financial lifeline to the Greek government by ordering the country's commercial banks to stop funding Athens through short-term treasury bills.

On Friday, the president of the German Bundesbank, Jens Weidman, publicly voiced his anger over how the leftist government in Athens is handling its funding crisis. Weidman complained that Prime Minister Alexis Tsipras had "gambled away a lot of trust."

Speaking in an interview with Germany's weekly magazine "Focus," Weidmann also said that he was opposed to increasing emergency loans to Greece, as he didn't "buy the argument that they are financially overburdened."

Jens Weidmann, Wolfgang Schäuble

Jens Weidman (left) and Finance Minister Wolfgang Schäuble are the most vocal EU critics of current Greek government policies.

Weidmann sits on the European Central Bank's decision-making governing council, and heads a group of European national central bank governors who have adopted a hardline position on the Greek debt crisis.

Funding source to dry up

Greece is trying to ensure more funding from its creditors to avert a state default, and Greek commercial banks have become the main source of financing for the government.

But the ECB has already restricted a main funding instrument, which is short-term, mainly three-month, government debt known as Treasury bills (T-bills). Under a deal with the ECB, Athens is not allowed to sell T-bills to its banks in excess of 15 billion euros ($16.3 billion), and the central bank doesn't accept more than 3.5 billion euros worth of such debt as collateral for bank refinancing.

Commerzbank analyst Christoph Weil told DW that those limits may have been reached, and that all attempts by the Greek government to expand them had failed.

According to media reports, the ECB is preparing to remove this source of funding completely by ordering Greek banks to no longer buy government debt. Martin Faust of the Frankfurt School of Finance says the move will increase the risk of a debt default for Athens.

"On the other hand, the ECB appears determined to increase the pressure on the government," he told DW.

Time running out

The Greek government is expected to present a list of reforms next Monday, under efforts to unlock more emergency funding from its bailout lenders - the ECB, the EU and the International Monetary Fund (IMF).

The group, which has kept Athens afloat with bailouts worth a total of 240 million euros, has made payment of a 7.2-billion-euro tranche contingent on additional measures to cut government spending.

Griechenland Banken Eurobank

As the funding crisis worsens, uncertain Greeks are converting their euro savings to cash.

A source familiar with Greece's finances told Reuters on Tuesday that Athens would run out of money on April 20 without new cash.

Commerzbank's Christoph Weil expects the Tsipras government to face default already on April 9, when a 500-million-euro loan from the IMF matures.

The country's cash-starved banks are experiencing a worsening liquidity crisis as Greeks have started to withdraw huge amounts of cash in anticipation of a worsening crisis. Just earlier this week, the ECB granted more funding to the banks by boosting the so-called Emergency Liquidity Assistance facility by 400 million euros, to a total of 71.1 billion euros.

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