Jens Weidmann, boss of the Bundesbank, wants the opposite of debt relief for Greece. Really.
Jens Weidmann, boss of the Bundesbank, wants to restrict the power of the Greek central bank to provide Emergency Liquidity Assitance (ELA) to the Greek banks as he is afraid that Greek banks will use these reserves to purchase short-term government debt (at this moment total assistance is about 89 billion). Sigh. Greek banks indeed own some short-term government debt. But the Greek government was, as late as april 2015, in fact still funding the banks too, with as much as 9 billion euro (graph 1). Which comes on top of the tens of billions of income transfers from the Greek government to the Greek banks. And the Greek banks do not need ELA to purchase government debt but to be able to provide the ATP’s with cash (which they have to buy from the central bank) as especially Greek households are exchanging deposit money for cash (between november 2014 and april 2015: about 21 billion, at this moment it might be about 30 billion). This bank run is clearly triggered the lack of credibility of the European Central Bank (look here). Restricting ELA will disable households to take their money out of the banks and will therewith cause a large problem for Greek households in case of Grexit, when deposit money will be redominated (unlike Euronotes). It’s hard to believe that Weidmann does not understand this (though I’m not too impressed with his accounting skills, to put it mildly). Which means that he is trying to engineer a severe, unnecessary and cruel haircut of Greek deposits – the opposite of debt relief. First, you trigger a bank run, than you disable people to take their money out of the bank – while the very bankrun you engineered increased the risk that this bankmoney will loose value….
Up to April almost the decrease of household deposits can almost entirely be explained by the decrease of term deposits, which means that withdrawals would probably have bene larger if this had not been restricted by the maturities of the specific deposits.