Greece Starts Creditor Talks as ECB Patience Wears Thin

Creditor officials and Greek authorities began talks intended to unlock bailout funds, as some euro-area central bankers were said to raise opposition to the prospect of additional emergency cash for the country’s banks.

Representatives of the European Central Bank, the European Commission, the European Stability Mechanism and International Monetary Fund are meeting in Brussels on Wednesday with Greek executives, according to a Greek government official. The formation will be collectively known as the “Brussels Group,” the official said, asking not to be named in line with policy.

As bailout disbursements have ceased, the Greek state covers its cash deficit by rolling over treasury bills, forcing the country’s banks to make a choice between participating in liquidity-draining auctions or letting their sovereign default. Hurt by a steep deposits outflow, and their exposure to junk-rated Greek state assets, the country’s lenders are themselves being kept afloat by an Emergency Liquidity Assistance lifeline, amounting to almost 69 billion euros ($73 billion), subject to non-objection by the ECB.

Greece will face opposition from some members of the ECB’s Governing Council if it requests an increase in the level of ELA, two people familiar with the discussions said Wednesday. The Frankfurt-based institution’s Governing Council will review the cash-line in a conference call on Thursday before making a decision.

Brussels Group

Greece’s funding position will come under scrutiny this week as officials from creditor institutions will visit Athens to check the country’s books, according to separate two persons familiar with the matter, who asked not to be named in line with policy.

Only low-ranking technocrats from the Brussels Group will be allowed to Greece’s capital for on site exchange of facts and won’t meet ministers, according to the Greek official. Visits to Athens will have to be agreed by the Greek side, the official said in an e-mail to reporters.

“Our joint aim is to make these talks succeed,” EU Commission spokeswoman Mina Andreeva told reporters in Brussels, saying that no details were available on the Athens element of the talks. “We should let the experts do their work calmly in order to arrive at a successful conclusion of the talks.”

The deadlock sent Greek government bonds lower, with three-year yields rising 190 basis points, or 1.9 percentage points, to 18.33 percent at 5:09 p.m. Athens time. The 10-year rate climbed 38 basis points to 10.76 percent, the highest since Feb. 10. Stocks fell 1.8 percent.

T-Bill Auction

Greece sold 1.3 billion euros in 13-week treasury bills today, with a uniform yield of 2.7 percent, the highest in a year.

As in every auction since a Jan. 25 ballot catapulted the anti-austerity Syriza party to power, the coverage ratio was 1.3, matching the exact amount needed to absorb non-competitive bids on top of the auctioned amount.

The proceeds will be topped up with another 300 million euros of second day bids on Thursday, and used to roll over a 1.6 billion euros treasury bill redemption of the exact amount.

Greece’s government also needs to repay about 352 million euros to the IMF on Friday.

“The auction result was O.K.” Thanassis Drogossis, head of Equities at Athens-based Pantelakis Securities, said in an e-mail. “Liquidity is very tight, but thankfully another box was ticked in the race against time.”

Cash Crunch

Without access to capital markets, Greece’s only sources of financing are emergency loans from the euro area’s crisis fund and the IMF. Failure to unlock bailout funds will lead to the country running out of cash within weeks.

“People are worried that Greece is running out of cash,” said Daniel Lenz, lead market strategist at DZ Bank AG in Frankfurt. “So far there are no intentions of the Eurogroup to transfer money without Greece delivering some of the requirements,” he said, referring to euro-area finance ministers. “Greece itself is obviously lagging very much behind delivering the requested details on reforms. GGB rates may even head to new highs in the coming days on a further level of escalation we are seeing.”

Last week, the ECB’s Governing Council decided to hold a weekly review of the liquidity needs of Greek banks, instead of the regular biweekly process and to monitor ELA provision for Greece more closely.

“It isn’t entirely clear what is the state of Greece’s economy and budget,” Estonian Finance Minister Maris Lauri told reporters in Tallinn. “At this point, we can’t say anyone has an opinion on what should be done and what shouldn’t be or should be replaced, because we don’t have that picture.”

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