The Greek government issued a decree that forces local governments to transfer cash balances to the central bank, as debt to the International Monetary Fund (IMF) and month-end salary payments come due.

“Central government entities are obliged to deposit their cash reserves and transfer their term deposit funds to their accounts at the Bank of Greece,” the decree, issued Monday on a government website, said. The “regulation is submitted due to extremely urgent and unforeseen needs.”

The move to effectively confiscate cash reserves currently held in commercial banks and transfer them to the central bank could raise about 2 billion euros (US$2.15 billion), two people familiar with the issue said. The cash can then be used to meet obligations such as the repayment of a 770 million-euro tranche owed to the IMF on May 12, the people said.

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

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

Greek bonds fell as yields on three-year notes rose 138 basis points, to 28.1 percent, as of 5:33 p.m in Athens. With the country running out of cash, credit-default swaps suggested there is about an 81 percent chance of Greece being unable to repay its debt in five 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 of trading.

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

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

 

‘Negative Development’

“The situation with Greece needs to be resolved soon,” Cypriot Finance Minister Harris Georgiades said in a Bloomberg Television interview Monday. “It would be a negative development if no progress 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 must pick up considerable momentum, and the responsibility for that lies with the Greek government,” ministry spokeswoman Friederike von Tiesenhausen said in Berlin.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of his euro-region counterparts, said in Washington on Saturday that a deal won’t be ready by the Riga gathering.

Greek officials, including Deputy Prime Minister Yannis Dragasakis, remained defiant over the weekend, saying the government won’t betray its electoral promises and worsen the pain that came from previous austerity measures.

 

‘Blackmail Greece’

“We want a viable solution within the euro,” Dragasakis said in an interview with To Vima newspaper. Still, “we won’t budge from our red lines.” Snap elections or a referendum are possible should talks stall, Dragasakis said.

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

While “so-called” partners, including unidentified International Monetary Fund officials, want to “blackmail” Greece into adopting measures that would hurt the working class, “we won’t betray the people’s mandate,” Energy Minister Panagiotis Lafazanis said, according to an interview published Sunday in Athens-based Real News newspaper.

 

– With assistance from Paul Tugwell in Athens.

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