Greece orders local governments to send money to central bank

ATHENS - Running out of options to keep his country afloat, Greek Prime Minister Alexis Tsipras has 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 their 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 two billion euros ($2.15 billion), according to two people familiar with the decision. The move, reminiscent of steps that cash-strapped Argentina has taken over the last decade, shows how time is running out for Tsipras, a point made by European officials who addressed the matter in recent days at IMF meetings in Washington.

"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 the Paris newspaper Le Figaro in an interview Monday.

Greece's three-year yield jumped 183 basis points, or 1.93 percentage points, to 28.7 percent. Credit-default swaps suggested about an 81 percent chance of Greece's being unable to repay its debt in five years, compared with about 67 percent at the start of March, according to CMA data.

The new funds may be just enough for salaries and a 770 million-euro payment to the IMF due May 12, the two sources 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 L.L.P. in London. The next step, he said, "may be forcing all public-sector entities, including public-sector companies, to do the same."

The Athens City Council and the union of municipalities and communities in Greece will convene Tuesday to debate the order.

George Papanikolaou, mayor of the Athens suburb of Glyfada, said 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.

Argentina's president, Cristina Fernandez de Kirchner, in 2008 nationalized about $24 billion of pension-fund assets held in 10 private plans as her government struggled to find financing. The government justified the move as protecting retirement savings from the vagaries of the market.

Then in 2010 and again in 2012, Fernandez rewrote the central bank's charter to allow the government to use foreign reserves for its own debt spending and payments.

Greece and its creditors remained at loggerheads with time running out. The sides have not even set 2015 budget targets, let alone policies to meet them, an official representing creditors said Monday, asking not to be named, as talks are not public.

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