ECB Official Warns on Greek Banks Aid

25-Jun (New York Times) — The head of Germany’s national central bank is warning that the lifeline keeping Greece’s banks afloat may run afoul of European rules.

Jens Weidmann, who sits on the governing council of the European Central Bank, says the long-term provision of emergency credit to Greek banks “has become the banks’ only source of funding.”

He said lending to banks that can’t borrow elsewhere so they can lend to a government in similar straights “raises serious monetary financing concerns.” That means Weidmann questions whether the practice violates the European Union’s legal prohibition on using central bank powers to finance governments.

The ECB must decide at regular intervals whether to continue to permit Greece banks to draw such emergency credit. Turning off the credit could deepen financial turmoil. Weidmann has only one vote on the 25-member ECB board but a significant one since represents Germany, the eurozone’s largest member.

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