Greece Liquidity Crisis
Greek finance minister Yanis Varoufakis looks on during a parliamentary session in AthensReuters

Greece's finance minister has warned eurozone nations not to play with fire by forcing his country into a default.

The country's banks are on the verge of running out of money as talks to prevent Greek bankruptcy next month remain deadlocked over eurozone demands for VAT increases, pension cuts, privatisations and labour reforms in return for emergency funding.

Unless negotiations with Greece's eurozone partners anblock €7.2bn (£5.18bn, $7.73bn) in existing bailout loans, Athens is expected already to be bankrupt when it pays back €770m to the International Monetary Fund (IMF) on 12 May.

Finance minister Yanis Varoufakis warned eurozone countries: "Anyone who toys with the idea of cutting off bits of the eurozone hoping the rest will survive is playing with fire."

In the interview with Spanish TV, Varoufakis added: "Some claim that the rest of Europe has been ring-fenced from Greece and that the European Central Bank [ECB] has tools at its disposal to amputate Greece, if need be, cauterise the wound and allow the rest of eurozone to carry on.

"I very much doubt that that is the case. Once the idea enters peoples' minds that monetary union is not forever, speculation begins who's next? That question is the solvent of any monetary union. Sooner or later it's going to start raising interest rates, political tensions, capital flight."

The impasse means that Greek banks could soon run out of collateral to access ECB emergency refinancing unless Athens reaches an agreement, Christian Noyer, the head of the French central bank, said today.

"At some point, Greek banks are likely to be unable to offer enough collateral to access refinancing even for emergency liquidity," he told Le Figaro newspaper.

Cash reserves moved to central bank

Earlier, the Greek government issued a decree that will force local government bodies to transfer all cash reserves to the country's central bank, according to the government gazette website.

"Central government entities are obliged to deposit their cash reserves and transfer their term deposit funds to their accounts at the Bank of Greece," the decree said. The "regulation is submitted due to extremely urgent and unforeseen needs."

The move could generate about €2bn, according to sources familiar with the matter quoted by Bloomberg.