By Renee Maltezou and Lefteris Papadimas
ATHENS (Reuters) - Greek Prime Minister Alexis Tsipras on Tuesday called on lenders to break an impasse in cash-for-reform talks after Athens had to resort to a temporary expedient to make a crucial payment to the IMF.
Greek officials told Reuters they had emptied an International Monetary Fund holding account to repay 750 million euros to the global lender on Monday, avoiding default but underscoring the dire state of the country's finances.
At his second cabinet meeting in three days, Tsipras told ministers Athens was sticking to its "red lines" and that it was time to see lenders meet Greece halfway, according to a government official. The official said Greece is still expecting a deal by the end of the month.
"The Greek side has so far fully met everything the Feb. 20 Eurogroup decision foresaw. It has taken as many steps as possible towards the European partners' side," the official quoted Tsipras as telling his cabinet. "It's now our partners' turn to make the necessary steps in order for them to prove in practice their respect towards the democratic popular mandate."
Earlier, Germany's hardline finance minister Wolfgang Schaeuble said the negotiations' tone had improved but not their substance, warning again that time was running out for Greece.
"On the issues, progress in the talks is not comparable to the improvement in the atmosphere," Schaeuble told reporters after a European Union finance ministers' meeting in Brussels.
Euro zone partners issued a lukewarm statement on Monday welcoming incremental progress in the talks but noting that more work was needed to narrow remaining gaps. Sources say these are mainly over pension and labor reforms and budget targets.
The creditors are insisting Greece must adopt and begin implementing a full reform program before they will start releasing the last 7.2 billion euros from a bailout program that expires at the end of June.
ECB policymakers did not address the Greek government's wish to be allowed to sell more short-term Treasury bills, which would help Athens ease its funding crunch, when they reviewed emergency lending to Greek banks at a Tuesday teleconference.
But banking sources said the ECB did raise the ceiling on emergency liquidity assistance for the Greek lenders by 1.1 billion euros to 80 billion euros, to help them counter deposit withdrawals. It also refrained for now from tightening collateral requirements for the funds.
With Athens trying to scrape together all public cash reserves to pay pensions and wages this month, the method used to make the IMF payment underlined the government's predicament.
Greece drew on reserves from the IMF that are denominated in Special Drawing Rights (SDR), a basket of international currencies, which a Greek central bank official said was done with the Fund's approval. The account must be replenished within weeks.
MAYORS HOLD OUT
Greek government spokesman Gabriel Sakellaridis said Athens had gathered 600 million euros from local governments and other public entities with a decree requiring them to transfer cash reserves to the central bank.
The government had targeted 2.5 billion euros but hundreds of mayors across the country are holding out against the order, fearing the money will never come back, the municipalities union said, echoing mistrust among euro zone partners.
Finance Minister Yanis Varoufakis flew home to brief the cabinet on the state of the Brussels negotiations after saying an agreement is needed in the next couple of weeks.
Tsipras' Syriza party is torn between public pressure to reach a deal on almost any terms and left-wing supporters who want it to stick to its electoral mandate and reject pension cuts and mass layoffs.
An opinion poll conducted by Marc on May 5-7 showed 66 percent of Greeks wanted the government to reach an agreement rather than clash with euro zone partners, putting Greece's continued membership of the single currency bloc at risk.
But in a separate question, 57 percent said the government should stand by its non-negotiable "red lines".
EU leaders believe Tsipras has the authority to impose the necessary concessions to make pensions financially sustainable and ease hiring and firing rules in the private sector, as well as tax measures to achieve a sufficient primary budget surplus.
Schaeuble, under pressure from German lawmakers reluctant to approve further aid to Greece, said on Monday it might make sense for Athens to hold a referendum on the reforms, as Tsipras has suggested is possible.
But euro zone chairman Jeroen Dijsselbloem immediately warned that a plebiscite could further delay the implementation of reforms and hence the aid disbursements.
(Additional reporting by Renee Maltezou, Angeliki Koutantou and Deepa Babington in Athens, Alastair Macdonald in Brussels; Writing by Paul Taylor; Editing by Catherine Evans)