The Greek government issued a decree that forces localgovernments to transfer cash balances to the central bank, as debtto the International Monetary Fund (IMF) and month-end salarypayments come due.

“Central government entities are obliged to deposit their cashreserves and transfer their term deposit funds to their accounts atthe Bank of Greece,” the decree, issued Monday on a governmentwebsite, said. The “regulation is submitted due to extremely urgentand unforeseen needs.”

The move to effectively confiscate cash reserves currently heldin commercial banks and transfer them to the central bank couldraise about 2 billion euros (US$2.15 billion), two people familiarwith the issue said. The cash can then be used to meet obligationssuch as the repayment of a 770 million-euro tranche owed to the IMFon May 12, the people said.

Greece and its creditors remained at loggerheads with timerunning out to unlock aid and avert a default on the country's 313billion euros of obligations. The sides haven't even set 2015budget targets, let alone policies to meet them, an officialrepresenting creditors said Monday, asking not to be named as talksaren't public.

A spokesman for the Ministry of Finance declined to comment whencontacted by phone.

Greek bonds fell as yields on three-year notes rose 138 basispoints, to 28.1 percent, as of 5:33 p.m in Athens. With the countryrunning out of cash, credit-default swaps suggested there is aboutan 81 percent chance of Greece being unable to repay its debt infive years, compared with about 67 percent at the start of March,according to CMA data.

The Athens Stock Exchange dropped 0.1 percent at the close oftrading.

Without the seizure of public-sector funds, Greece would not beable to pay salaries and pensions at the end of the month, the twopeople said. The new funds may be just enough to pay the salariesas well as make the IMF payment, the people said.

European leaders want Greece to do more to revamp itsdebt-burdened economy, with progress to be reviewed on April 24 inRiga, Latvia, when finance ministers from the currency bloc meet.European Commission Vice President Valdis Dombrovskis said in aninterview in Washington that creditors might need to wait untilmid-May to see what Greece can deliver.

'Negative Development'

“The situation with Greece needs to be resolved soon,” CypriotFinance Minister Harris Georgiades said in a Bloomberg Televisioninterview Monday. “It would be a negative development if noprogress is made at the meeting in Riga.”

That message was echoed by the Finance Ministry in Germany,Greece's biggest country creditor. “The coordination process mustpick up considerable momentum, and the responsibility for that lieswith the Greek government,” ministry spokeswoman Friederike vonTiesenhausen said in Berlin.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetingsof his euro-region counterparts, said in Washington on Saturdaythat a deal won't be ready by the Riga gathering.

Greek officials, including Deputy Prime Minister YannisDragasakis, remained defiant over the weekend, saying thegovernment won't betray its electoral promises and worsen the painthat came from previous austerity measures.

'Blackmail Greece'

“We want a viable solution within the euro,” Dragasakis said inan interview with To Vima newspaper. Still, “we won't budge fromour red lines.” Snap elections or a referendum are possible shouldtalks stall, Dragasakis said.

In a sign that patience may be wearing thin, Dijsselbloem saidin an interview published Monday with De Telegraaf newspaper thatthe situation can be isolated. Greece makes up “only” 2 percent ofthe European economy and there will come a time when the countryruns out of cash, he said.

While “so-called” partners, including unidentified InternationalMonetary Fund officials, want to “blackmail” Greece into adoptingmeasures that would hurt the working class, “we won't betray thepeople's mandate,” Energy Minister Panagiotis Lafazanis said,according to an interview published Sunday in Athens-based RealNews newspaper.

– With assistance from Paul Tugwell in Athens.

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