ECB limits funding lifeline for Athens amid Bundesbank protest: sources

[FRANKFURT] The European Central Bank limited a crucial lifeline for Greece, after the head of the Bundesbank told peers he had serious doubts about providing continued emergency funding to Greek banks, people familiar with the discussion said.

ECB policy-setters held the limit on this emergency funding for Greek banks steady for the second day running after weeks of increases, a source familiar with those talks said.

Greece's central bank may not have asked for an increase, though the country's lenders have seen their reserves dwindle daily as savers spooked by the prospect of default continue to withdraw cash.

This raises pressure on the government in Athens as time runs out for it to agree a cash-for-reforms with its creditors to avert a default.

Bundesbank President Jens Weidmann has warned against the use of emergency credit to prop up Greece's banks ever since the lenders started to rely on it in February. His latest protest was significant because of its timing. "He has made his concerns clear from the start," said the source, adding that Weidmann raised the issue this week in a telephone call among euro zone central bank chiefs and the European Central Bank's executive.

Earlier this week, politicians in Ireland and Germany voiced similar concerns.

The objections of Germany's central bank, respected as a guardian of monetary order in the euro zone's biggest economy, are significant although it alone cannot stop the Emergency Liquidity Assistance (ELA) being extended to Greece's banking sector, which is now about 89 billion euros (S$134 billion).

Greece's ruling Syriza party has dismissed reform demands from the country's international creditors as "blackmail", just as crisis talks to avert a debt default and a euro zone exit entered a critical phase.

As president of the Bundesbank, Mr Weidmann also sits on the ECB's Governing Council, which holds daily phone calls to discuss the extension of the ELA funding. This group can restrict such funding if a two-thirds majority agrees.

Others too have concerns about the funding lifeline although they have been wary about speaking out, not wanting to be accused of triggering Greece's financial collapse, one person who attends the meetings of central bank chiefs recently told Reuters.

This could now change, as some countries typically fall in behind the Bundesbank.

Ralph Brinkhaus, deputy parliamentary floor leader for German Chancellor Angela Merkel's conservatives, had said that the funding was keeping Greece "artificially ... above water".

REUTERS