By Mehreen Khan 20 April 2015
Government issues emergency decree forcing all state bodies to transfer funds to the central bank
The move could help the Greeks from defaulting on their citizens in the coming weeks Photo: AFP PHOTO / Angelos Tzortzinis
The Greek government has ordered a mandatory transfer of cash reserves from state-owned enterprises to its central bank, in a desperate bid to gather enough cash to remain solvent.
Citing "extremely urgent and unforeseen needs”, the government issued the emergency decree which will apply to all local government bodies immediately.
The move comes as Athens' cash crisis degenerates with every passing day. Even the most conservative estimates calculate the government's coffers will run dry in a matter of weeks.
Despite the risk of violating its fiduciary obligations, the decree could now help the government meet its monthly €1.7bn wage and pension bill, averting a default on its own citizenry.
It is thought the confiscation of reserves held in commercial banks to the Bank of Greece could raise as much as €2bn for the government.
"Central government entities are obliged to deposit their cash reserves and transfer their term deposit funds to their accounts at the Bank of Greece," said the presidential decree.
The move saw yields on Greek government bonds continue their recent ascent, with three-year bonds spiking to 28pc - the highest level since Greece was forced into a debt restructuring in 2012.
In a sign of the desperate measures being considered by Europe's authorities, the European Central Bank touted the possibility of imposing capital controls in a bid to ease the liquidity strain.
The ECB's vice president Vitor Constancio said officials would consider the measure if Athens' Leftist government requested them.
Capital controls were last used in the Eurozone at the height of Cyprus's banking crisis in 2013. Mr Constancio said the Cypriot precedent showed that the measures did not have to lead ineluctably to a Greek exit from the Eurozone.
But in a sign of escalating defiance from Athens, Greece's Deputy Prime Minister Yannis Dragasakis said his government would not retreat from its red lines and did not rule out a referendum or early polls if talks failed to progress.
Hopes of securing a deal by the end of the month have faded rapidly, following a fraught week in which debt drama moved temporarily to Washington for the IMF's Spring conference.
"There has been a little bit more impetus in the negotiations between the three institutions and the Greek government for several days," said European IMF chief Poul Thomsen, who calculated the government could last out without fresh funds until June at the very latest.
"The burden of repayments which are coming up for Greece is very big. We need to reach an agreement beforehand so that further assistance loans can be paid out."
Greece owes just under €1bn to the IMF in the first two weeks of May. Athens narrowly avoided becoming the first developed country to ever fall into arrears with the Fund earlier this month, but could now be forced once again to choose between defaulting on its creditors or on its own people.
France's central bank chief has also warned Greek banks may soon run out of collateral to access ECB refinancing unless Athens reaches an agreement with its creditors powers on implementing economic reforms.
"At some point, Greek banks are likely to be unable to offer enough collateral to access refinancing even for emergency liquidity," said Christian Noyer.
"It is therefore urgent that Greece put an end to the current situation and that Athens should establish a programme with the IMF and the backing of other Eurozone countries in order to re-establish confidence."