Mayors lash out at Greek government's demand for cash as default fears grow

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 has been battling to come to a deal with its international creditors on unlocking some 7.2 billion euros ($7.7 billion) in bailout funds.

With some 3 billion euros to pay out in wages and debt servicing in the next three weeks, the government on Monday published a decree requiring all public institutions -- including hospitals and universities -- to hand over their reserves.

The move underlined the urgency of the cash crunch Athens is facing, and heightened fears that Greece was close to default and a potentially chaotic exit from the eurozone.

On Tuesday, Eurogroup president Jeroen Dijsselbloem offered a glimmer of hope, saying some progress had been made in talks with Greece.

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 Athens' stock market closed down 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, the bill is expected to be approved.

Meanwhile, the Eurogroup's chief gave a more optimistic assessment of debt negotiations with Greece, saying there has been progress in talks.

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

Asked whether an agreement between Greece and its creditors could be in sight by the end of this month, he said: "It's possible."

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.

Tsipras is also 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.