Chancellor Angela Merkel expects the Greeks to meet their existing commitments to the rest of the euro area, and she's prepared to wait until May for Tsipras to fold, a person familiar with her thinking said Tuesday.

“The financial markets' recently more relaxed attitude to the Greek problem is hardly justified,” Stephen Lewis, an economist at ADM Investor Services in London, wrote in note to clients. “If the Greek government entertains no prospect of agreement with its creditors, it is unlikely to stand by until the end of the month and then see what happens.”

In similar situations throughout the crisis, which struck in 2010, Greece has met its obligations by issuing short-term bills to local banks, which pledged them to the European Central Bank (ECB) as collateral. Now Tsipras is running up against the limits of that approach, which the ECB Governing Council considered in a meeting Wednesday.

Varoufakis also met with ECB officials in Frankfurt on Wednesday. ECB President Mario Draghi told the Greek finance chief he needs to talk to the troika, which oversees Greek compliance with the bailout's terms, and made no offer about raising the central bank's own limits on collateral, according to a person briefed on the meeting.

“We established an excellent line of communication that gives me a great encouragement for the future,” Varoufakis said after the meeting.

Varoufakis is going to need more than encouragement from the policy makers in Frankfurt and Berlin.

Demand for Greek bills was weaker than at any point in the crisis at the government's auction on Wednesday, the first since Tsipras's election victory.

That echoes the deposit flight afflicting lenders. Greek banks lost at least 15 billion euros in deposits in the two months before the election, about 9 percent of the total.

Beyond that, the ECB is reaching its limit for funding Greek banks.

Greek banks have maxed out the 3.5 billion-euro limit on the total amount of treasury bills the ECB will accept as collateral from them. The ECB supervisory chief, Daniele Nouy, has written to bank executives advising them not to invest their liquidity in assets that the central bank won't accept.

The squeeze is getting worse because the change of government and a looming standoff with the troika persuaded many to hold off paying their taxes, according to a troika official. In part that's because of Tsipras's policy proposals. During the campaign, he pledged to replace property levies with a wealth tax and to raise the income-tax threshold. So some, reckoning their tax bills might be cut, opted to avoid paying altogether.

Tax revenue fell short of government forecasts by 1.3 billion euros in December, according to finance ministry data.

Cash Hopes

The government's coffers are set for a 641-million-euro boost this quarter from a Bank of Greece dividend and cash-back from its investment in Greek bonds. The government can also tap at least 625 million euros in its bank recapitalization fund, the person said.

But this still won't be enough to meet end-of-March obligations if the stock of treasury bills doesn't increase, he said. Without help from the ECB, the government will be 4 billion euros short, the person said.

To stay liquid, Greece needs the troika to lift its 15 billion-euro cap on the amount of short-term debt it can issue, and it needs the ECB to lift the 3.5 billion-euro limit on the volume of bills it will accept from Greece as collateral.

The funding limits give “the power to the ECB to turn off liquidity and effectively impose Grexit,” Nicholas Economides, professor of economics at Stern School of Business in New York said in an email, referring to a Greek exit from the euro. “Greece is in very deep waters.”

Euro region finance ministers are due to meet Feb. 16 in Brussels when Greece's plight is likely to dominate discussions.

–With assistance from Christos Ziotis and Marcus Bensasson in Athens, Jeff Black in Frankfurt and James Hertling in Paris.

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