GREXIT LOOMS

Athens may run out of cash by Feb. 25 if borrowing limit not raised By the end of March Athens would have to decide between bailout or leaving euro ECB deems Greek debt no longer fit for use as collateral

FRANKFURT/BRUSSELS • The European Central Bank abruptly canceled its acceptance of Greek bonds in return for funding on Wednesday, shifting the burden onto Athens’ central bank to finance its lenders and isolating Greece unless it strikes a new reform deal.

The move, which means the Greek central bank will have to provide its banks with tens of billions of euros of additional emergency liquidity in the coming weeks, was a response to what many in Frankfurt see as the Greek government’s abandoning of its aid-for-reform program.

The decision came just hours after Greece’s new finance minister Yanis Varoufakis emerged from a meeting with ECB president Mario Draghi to claim that the ECB would do “whatever it takes” to support member states such as Greece.

In stark contrast, the ECB move, which required the support of a majority of central bank chiefs across the eurozone, shows widespread dismay with the new Greek government’s plans across the 19-country bloc.

The ECB announced its decision, which will take effect from Feb. 11, after those governors met in Frankfurt on Wednesday.

It means that the tens of billions of euros of Greek government bonds as well as bank bonds guaranteed by Athens will no longer qualify as security in return for ECB funding to those banks.

Instead, it will now be up to Greece’s central bank to provide those banks with Emergency Liquidity Assistance (ELA), a step it takes at its own risk, ringfencing those banks’ funding problems from the rest of the eurozone.

Were the central bank to run into difficulties as a result, it would be up to the debt-strapped Greek government, which can ill afford it, to step in.

The unexpected move followed an appeal from Greece’s new leftist government to the ECB to keep its banks afloat as it saught to negotiate debt relief with its eurozone partners.

The ECB has now effectively refused this request, adding to Greece’s problems as Germany rejected any roll-back of agreed austerity policies.

The ECB move was a setback for Greece’s Mr. Varoufakis, who had earlier pledged speedy talks with international lenders on setting up a new program of reform after abandoning its earlier aid plan.

It puts Greek banks in a difficult position. Two Greek banks had already begun to tap emergency liquidity assistance from the Bank of Greece after an outflow of deposits accelerated after the victory of the hard left Syriza party in a general election on Jan. 25, banking sources had told Reuters.

The health of Greece’s big banks is central to keeping the country afloat.

A document prepared by Germany for a meeting of EU finance officials on Thursday made clear Berlin wants Athens to go back on promises to raise the minimum wage, halt unpopular sales of national assets, rehire fired public sector workers and reinstate a Christmas bonus for poor pensioners.

The ECB’s surprise move caused a late safe-haven rally in the U.S. Treasuries on Wednesday, erasing initial losses tied to encouraging U.S. and European economic data.

The ECB decision reduced optimism that Greece’s new government might reach a timely deal with eurozone partners to keep banks afloat and avert a cash crunch as early as March.

Unless the ¤15 billion limit on short-term borrowing set by Greece’s troika of official creditors is raised, the government may run out of cash on Feb. 25, said one person, familiar with the country’s financial position, who asked not to be named because the figures are confidential. Three weeks ago, international officials reckoned Greece could hang on until mid-year.

With Greeks yanking their cash from banks and withholding tax payments, Prime Minister Alexis Tsipras would only be able to survive for a few more weeks by tapping socialsecurity funds and withholding payments to vendors, the person said.