Bank shares have fallen and bond yields have risen in Greece on worries the ECB may be planning to restrict bank funding. The market jitters followed news that the government has ordered municipalities to send cash reserves to the central bank. As Sonia Legg reports, it's all making the situation in Greece look more and more desperate.
It may be a way to delay a default but the mayors of many Greek towns aren't happy. They say a government order forcing local authorities to send their cash reserves to the central bank could be unconstitutional. (SOUNDBITE) (Greek) NEAPOLI SIKEON MAYOR SIMOS DANILIDIS SAYING: "This will block all the operations of the local authority. There will be tragic consequences for hundreds of thousands of families in relation to social services, day care centres, and retirement homes." (SOUNDBITE) (Greek) FALIRO MAYOR DIONYSUS CHATZIDAKIS SAYING: "This action by the government shows that we are living in the last days of Pompeii. If money is being removed from the municipalities then we should be aware that the state will not longer function." Greece must repay an IMF loan next month while maintaining pension and wage payments. A deal to release an EU bailout installment is still being discussed. But so far the government hasn't come up with enough reforms. Rabobank's Jane Foley says borrowing from state funds isn't the answer. (SOUNDBITE) (English) JANE FOLEY, SENIOR CURRENCY STRATEGIST, RABOBANK, SAYING: "Clearly it isn't necessarily a good thing but when Greece has been pushed to the wall over how it will pay people's salaries and pensions. This clearly is a desperate time and a desperate measure." If that wasn't enough to increase the odds of Greece leaving the euro then reports that the European Central Bank was planning to restrict bank funding might be. It led to a fall in Greek bank shares and a rise in bond yields. Greek voters too are running out of patience. (SOUNDBITE) (Greek) BUSINESSMAN HARIS PAPACHARALAMBOUS, AGED 43, SAYING: "It's a big concern to me because when this government was elected it promised different things, a different kind of policy, and now we see that another policy doesn't exist. He is doing this as a last resort, because he can't do anything else." A possible deal with Russia's Gazprom over energy supplies is another last resort - and a controversial one. (SOUNDBITE) (English) JANE FOLEY, SENIOR CURRENCY STRATEGIST, RABOBANK, SAYING: "Right now this is about posturing. This is about Greece trying to suggest to the EU that it could tighten up its links with Russia which of course at this time EU politics would not welcome." And there was another downer for the government - this time over growth. A Greek think tank has just revised forecasts to 1.4% from 2.3%.