Jens Weidmann Says ECB's Emergency Funding Calls Into Question Greek Banks's Solidity

By Todd Buell 

        FRANKFURT--The continued provision of emergency funding to Greek banks calls their solidity into question, one of the more hawkish members of the European Central Bank's Governing Council said Thursday, as the central bank takes daily decisions on providing Greek banks with emergency liquidity.
        German Bundesbank head Jens Weidmann said that emergency liquidity assistance in Greece "has been provided for a protracted period and has become the banks' only source of funding." He said this "casts doubt on their financial solidity [and] the latter is especially undermined by Greek policy decisions that have sparked capital flight and large-scale cash withdrawals."
        Though not particularly surprising coming from the conservative German, the comments shed light on the risk that the ECB could soon pull the plug on the emergency liquidity that is keeping Greek banks afloat.
        The ECB left unchanged the limit on emergency lending provided to Greek banks, a person familiar with the matter said Thursday.
        Daily bank deposit outflows in Greece have slowed in recent days after exceeding the billion euro mark late last week amid uncertainty over the country's bailout agreement with international creditors.
        On Thursday, the Greek central bank didn't request additional emergency loans, the person added.
        Mr. Weidmann said that "banks receiving ELA should be urged to do their utmost to improve their liquidity situation and be prevented from worsening it further by rolling over illiquid T-bills of their sovereign."
        "Against this background, it should be clear to all the parties to the current negotiations that the Eurosystem must not provide bridge financing to Greece even in anticipation of later disbursements," he added. "When banks without access to the markets buy debt of a sovereign which is likewise locked out of the market, taking recourse to ELA raises serious monetary financing concerns."
        Deflecting concerns that his hostility to ELA was a consequence of his nationality, Mr. Weidmann said that "respecting the core principles upon which our monetary union is built is not a matter of dogmatic German stubbornness, but a key policy condition for long-term economic prosperity in the euro area and for maintaining popular support for the historic project which European integration no doubt is."
        Brian Blackstone and Stelios Bouras contributed to this article.
        Write to Todd Buell at todd.buell@wsj.com
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        (END) Dow Jones Newswires

        June 25, 2015 06:45 ET (10:45 GMT)

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