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Mayors lash out at Greek govts demand for cash as default fears grow

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Mayors across Greece lashed out Tuesday at a government decree ordering them to hand over their cash reserves as Athens struggled to pay off its massive debt and avert a possible default.

The cash-strapped radical left-wing government is locked in negotiations with its international creditors on unlocking some 7.2 billion euros ($7.7 billion) in bailout funds.

But as the talks dragged on, the government on Monday published a decree requiring all public institutions — including hospitals and universities — to hand over their reserves to help pay some 3 billion euros in civil servants’ wages and debt servicing costs in the next three weeks.

The move underlined the urgency of the cash crunch faced by Athens, and heightened fears that Greece was lurching closer to defaulting on its debt and a potentially chaotic exit from the eurozone.

Eurogroup president Jeroen Dijsselbloem offered a glimmer of hope on the debt negotiations with Athens on Tuesday, saying some progress had been made.

But within Greece, local authorities were up in arms against the government’s decree, warning that the raid on their reserves could bring public services to a halt.

“It is unjust and unacceptable for the state to manage municipalities’ funds,” Giorgos Patoulis, who heads the Central Union of Municipalities, said during a meeting attended by deputy finance minister Dimitris Mardas.

The move “threatens to stop public works like roads, hospitals and schools”, warned Kostas Agorastos, president of the Greek governors’ union.

“Transferring funds used by municipalities and regions… to the Bank of Greece has triggered financial panic,” he added, as the Athens stock market lost 3.3 percent.

– ‘Just a loan’ –

Mardas defended the government’s move as “no more than a short-term loan by the state”, adding that the funds would be reimbursed “according to the needs, within a period of 15 to 20 days”.

The government also argued that both the Netherlands and Britain have resorted to similar measures before.

In the decree, the government listed its urgent needs as: “1.1 billion euros in wages, 850 million euros in social insurance funds, 200 million euros in interest on debt and on May 12, 746 million in repayment to the IMF”.

The decree has to be formally adopted by parliament, but as ruling party Syriza holds a near-majority, it is expected to be approved when it is put to deputies on Wednesday.

Analyst Georges Sefertzis said the government’s decision carries a heavy political cost.

“The government is heading into conflict with local authorities which are highly regarded by people and with whom the links have been strengthened during the crisis due to the numerous acts of solidarity that they have implemented,” he said.

Athens’s move came after both the EU and the IMF sounded the alarm on Saturday over the pace of debt negotiations, with ECB chief Mario Draghi saying: “More work, much more work is needed now, and it’s urgent.”

The Eurogroup’s chief however had a more positive take on Tuesday, assessing that there has been progress in talks.

“This gives us reason to be optimistic,” Dijsselbloem told Dutch television.

The EU has been pressing Athens to detail a programme of acceptable reforms by Friday, when eurozone finance ministers are due to meet in Latvia’s capital Riga.

But Athens is holding out against the reforms demanded by its creditors in exchange for the last tranche of 7.2 billion in aid funds, with the government insisting that it will not renege on its election promise to reverse austerity.

Tsipras is due to meet German Chancellor Angela Merkel on the sidelines of an EU summit in Brussels Thursday, but his office did not say what the two leaders would discuss.

Meanwhile, Athens said talks Tuesday with Russian energy giant Gazprom over a possible extension of the Turkish Stream gas pipeline were “constructive and substantial”, but no deal was signed.

A Greek official had said over the weekend that both sides would ink an agreement in which Athens would receive billions of euros in advance payment for future gas transit fees.

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