Athens demands cash reserves from public sector funds

Five Euro Note

The Greek government has issued a decree forcing public sector bodies to transfer idle cash reserves to the central bank in a sign of how severe the country’s cash crunch has become.

The order came as the country’s finance minister, Yanis Varoufakis, issued a stark warning to eurozone neighbours that they were playing with fire as Athens edges closer to a debt default.

Fears of a Greek exit from the eurozone have increased as signs grow that the country is on the brink of bankruptcy. The state is scrambling to find funds to pay almost €2bn (£1.4bn) in wages and pensions and almost €1bn to the International Monetary Fund in the coming weeks.

The language in Monday’s presidential decree provides an insight into just how tight finances have become for Greece’s recently elected anti-austerity government, led by Alexis Tsipras’s Syriza.

“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 news service Bloomberg quoted the decree on the government gazette website as saying.

The “regulation is submitted due to extremely urgent and unforeseen needs”, it said.

Greece owes money to the IMF, the European Central Bank (ECB) and the European commission following two bailouts totalling €240bn in 2010 and 2012.

Athens is waiting for the final €7.2bn payment under the most recent bailout package, but the money has been held up after the country’s leftwing government scrapped previous commitments to privatise state assets and cut welfare provision.

Economists have predicted that without the rescue funds, Greece is unlikely to make the salary and pensions payments and settle its dues with the IMF. They say Greece is edging closer to a default on its debt obligations that could precipitate the country’s exit from the eurozone.

Varoufakis used one of his frequent media appearances to say that contagion would be inevitable if Greece were to leave the eurozone.

“Anyone who toys with the idea of cutting off bits of the eurozone hoping the rest will survive is playing with fire,” he told the Spanish TV channel La Sexta.

“Some claim that the rest of Europe has been ringfenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterise the wound and allow the rest of eurozone to carry on.

“I very much doubt that that is the case. Not just because of Greece but for any part of the union,” he said.

Eurozone finance ministers meet for further talks on Greece on Friday, but no breakthrough is expected. Focus is already shifting to early May when IMF payments are due.

With money running out, Greece has been trying to convince its international creditors to release the last chunk of rescue funds. Many of its fellow eurozone countries, however, and Germany in particular, say they first want clearer commitments to reforms from Tsipras and his government.

There are growing worries on the financial markets that the slow progress in negotiations means Greece will not be able to meet May’s debt deadlines. Yields on Greece’s government bonds have been rising while those on German bonds fell again on Monday, meaning their price rose, as investors continued to chase safe-haven assets.

After the gloomy tone at last week’s IMF spring meetings in Washington on Greece and the eurozone’s prospects, the fund’s top man in Europe, Poul Thomsen, struck a more optimistic note on Monday. Talks over the weekend between Greece and the IMF, the ECB and the European commission had made some progress, he told Germany’s Handelsblatt newspaper.

“There has been a little bit more impetus in the negotiations between the three institutions and the Greek government for several days,” Thomsen said. “That’s a good development and gives us reason to hope.”

There were also encouraging comments from the ECB vice-president, Vitor Constancio, who played down the prospect of Greece leaving the eurozone.

“We are convinced at the ECB that there will be no Greek exit,” he told the European parliament.

He added a note of caution, however, for anyone expecting ECB support for Greece and its banks to be unlimited. “We have been forthcoming, but I cannot promise … that we will fund Greece whatever the situation and the amount and the conditions,” he said.

Powered by article was written by Katie Allen, for The Guardian on Monday 20th April 2015 16.34 Europe/London © Guardian News and Media Limited 2010


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