Greek government taps state entities' cash reserves to avert crunch

The Greek government's decision to resort to the state entities' cash reserves to cover imminent financial obligations and avert a looming crunch was met with strong reactions by opposition parties and local authorities on Tuesday.

With a legal decree which does not require ratification by the parliament, the Leftist government opened the way for the obligatory transfer of such cash reserves to a central bank of Greece account within the next 15 days.

Only state social insurance funds and state-run companies listed on the Athens bourse were exempted. It was estimated that the government will secure 1 billion-2 billion euros (1.1 billion -2.2 billion U.S. dollars) via this step.

Cabinet ministers argued that the practice was widespread in the EU to meet needs in extraordinary cases.

Government officials assured they would borrow cash reserves, which are not needed in the near future by the entities, with higher interest rates of 2.5 percent instead of one percent offered by commercial banks.

Opposition parties, regional governors and mayors called it "an unacceptable and unconstitutional move" which will cause problems in the payment of salaries in local administration.

They stressed that the functioning of local administration was safeguarded by Greece's constitution, warning of taking legal actions against the decree.

Opposition parliament members criticized the Leftist government of surpassing the plenary by issuing decrees, a tactic they had opposed.

Political and financial analysts in Athens said the move indicates that the state coffers were close to running dry and that the government was under mounting pressure to make ends meet.

With no international aid since August, Greece has been struggling to repay loan installments of the International Monetary Fund (IMF) and pensions and wages of civil servants since March.

Negotiations on the formula of the post-bailout cooperation with international lenders have not proceeded as expected since February.

On May 12, Greece needs to repay another IMF installment and according to the latest statements by officials from both sides, an agreement on the needed reforms in return for further vital aid was not expected to be reached in the upcoming new Euro group meeting on April 24 in Riga, Latvia.

The impasse has intensified the scenarios of an imminent cash crunch, credit event, default within or outside the euro zone after five years of painful sacrifices by Greek people to exit the crisis. Endi