Post originally appeared on Bloomberg.
Running out of options to keep his country afloat, Greek Prime Minister Alexis Tsipras ordered local governments to move their funds to the central bank.
With negotiations over bailout aid deadlocked, Tsipras needs the cash for salaries, pensions and a repayment to the International Monetary Fund. Greek bonds fell after the move, pushing three-year yields to the highest since the nation’s debt restructuring in 2012. The order was questioned by local officials and slammed by the leading opposition party.
The decree to confiscate reserves now held in commercial banks and transfer them to the central bank could raise about 2 billion euros ($2.15 billion), according to two people familiar with the decision. It shows how time is running out for Tsipras, a point made by European officials who addressed the matter at IMF meetings in Washington in recent days.
“Central government entities are obliged to deposit their cash reserves and transfer their term deposit funds to their accounts at the Bank of Greece,” according to the decree issued Monday on a government website. The “regulation is submitted due to extremely urgent and unforeseen needs.”
A default on the country’s 313 billion euros of obligations and a euro exit would be traumatic for the currency area and plunge Greece into a major crisis, European Central Bank governing council member Christian Noyer told French newspaper Le Figaro in an interview published Monday.
The new funds may be just enough for salaries and a 770 million-euro payment to the IMF due on May 12, the people said.
The move is a sign of the “dire liquidity situation for the Greek financial system as the government pools all liquidity available,” said Gianluca Ziglio, executive director of fixed-income research at Sunrise Brokers LLP in London. The “next step may be forcing all public-sector entities, including public-sector companies to do the same,” he said.
The Athens city council and the union of municipalities and communities in Greece will convene tomorrow to debate the order.
George Papanikolaou, mayor of the Athens suburb of Glyfada said that local officials have “a responsibility to serve our citizens and improve their living standards.”
Glyfada has cash reserves of about 16 million euros, he said in an interview.
Greece’s main opposition party decried the seizure.
“The deadlock that’s been brought on by the government can’t be paid for by using the wealth of the Greek taxpayer and through an internal default,” Kostas Karagounis, spokesman for the New Democracy party, said in a statement.
Greece and its creditors remained at loggerheads with time running out. 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.
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.
“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.
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.
While “so-called” partners, including unidentified IMF 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.