Greece ordered state entities from municipalities to a fund meant for future generations to park idle cash at the central bank in a scramble late on Monday to pay its bills.
With IMF loan repayments due next month, Greece has been tapping into public cash reserves in temporary transactions.
The latest demand shows how extreme the financial constraints on Greek Prime Minister Alexis Tsipras have become as he tries to convince foreign creditors to extend new financial aid.
Monday’s legislative order includes local administration but excludes pension funds and some state-owned firms. Cash reserves that are needed by these bodies for their immediate payment needs are also excluded from the regulation.
Raising pressure on the government, local officials threatened to defy the decision, which needs parliamentary approval. Most opposition parties said the decision was arbitrary.
“The government’s despair in an effort to find available cash is so great that it doesn’t even respect the Constitution,” said conservative lawmaker and former administrative reform minister Kyriakos Mitsotakis.
He urged a swift deal with Greece’s official lenders, who have so far dismissed government plans as vague and inadequate.
“Greece must take its responsibilities,” French Finance Minister Michel Sapin told BFM TV. “Greece must go faster now. We’re wasting time and time is precious on this matter.”
The latest effort to harness spare cash means parking money that a public body does not need immediately at the Bank of Greece. The money is lent to the debt agency for one to 15 days against collateral and is paid back with interest at expiry.
Greek finance ministry officials told Reuters last week that Athens will need to tap all the remaining cash reserves across its public sector, a total of €2 billion, to pay civil service wages and pensions at the end of the month. The finance ministry denied this.
Greece must take its responsibilities. It must go faster now. We’re wasting time and time is precious on this matter
Greece must repay the International Monetary Fund almost €1 billion due next month. Athens has said it wants to honour its debt obligations but government officials have said that wages and pensions would be a priority.
Tsipras needs to present detailed plans to reform the economy before a meeting of eurozone finance ministers in Riga on April 24 to prevent a default which could trigger a ‘Grexit’ from the euro.
The next regular Eurogroup meeting is on May 11, just a day before the IMF requires a €750 million loan repayment.
On Monday, ECB vice president Vitor Constancio said that a country that defaults would not have to leave the euro, in frank remarks about Greece that also touched on possible capital controls and showed how acute Athens’ problems have become.
Constancio discussed the possibility of a debt default and controls on the movement of money, saying neither necessarily meant a departure from the currency bloc.
“If a default will happen ... the legislation does not allow that a country that has a default ... can be expelled from the euro,” he told the European Parliament, saying that Greek banks had been told not to increase their exposure to the state to avoid “a possible credit event regarding the state”.
The comments from the typically reserved Constancio underscore the seriousness of Greece’s predicament and are the most open yet from the ECB, which is providing €110 billion of liquidity to the country and its banks.
Constancio also touched on the possibility of capital controls.
“Capital controls can only be introduced if the Greek government requests,” he said, adding that they should be temporary and exceptional. “As you saw in the case of Cyprus, capital controls did not imply getting out of the euro.”
Constancio underscored ECB support for Greece, telling lawmakers he was sure it would stay in the currency bloc.
“We are convinced at the ECB that there will be no Greek exit,” he said. “The [European Union] treaty does not foresee that a country can be formally, legally expelled from the euro. We think it should not happen.”
As it stands, the central bank is approving an ever growing amount of emergency funding for Greece’s lenders. While Constancio said this could not continue regardless of the circumstances, he hinted that the ECB would be loath to pull the plug.
“If the state defaults, that has no automatic implications regarding the banks, if the banks have not defaulted, if the banks are solvent and if the banks have collateral that is accepted,” Constancio said.
The ECB has analysed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, creating a virtual second currency within the euro bloc, people with knowledge of the exercise told Reuters last week.