Greece touts imminent loan deal, creditors cautious

Greece on Wednesday said it was close to a loan deal with its EU-IMF creditors that would unlock badly-needed bailout loans for its struggling economy.

"We are in the final stretch, we are close to an agreement," Prime Minister Alexis Tsipras said after a briefing at the finance ministry.

"Very soon we will be able to present more details," he said, as a top EU official said there were still several issues to be resolved.

A Greek government source had earlier said technical experts representing Athens and its creditors were to start drafting the long-awaited agreement in Brussels on Wednesday.

"The process of drafting the staff-level agreements begins in Brussels today," the source said.

Drafting a staff-level agreement would be the closest that Greece and its creditors have come to a deal to unlock the final 7.2 billion euros ($7.8 billion) of bailout loan money in four months of talks.

Time is running short as the Greek government is running out of cash and may not have enough to repay earlier loans from the International Monetary Fund that are due in a series of payments from June 5.

There are concerns that a Greek default on its payments could trigger a chain of events that could see the country tumbling out of the eurozone, spooking global investors and markets.

German Foreign Minister Frank-Walter Steinmeier stressed that a swift solution was imperative, warning that there would be "no winners" if Greece leaves the eurozone.

"Greece should be aware of the economic consequences" of pulling out and "Europe would be the target of criticism if we don't manage to resolve the Greek problem," he told reporters during talks with his Portuguese counterpart in Lisbon.  

European paymaster Germany has been the strongest advocate of austerity policies across the eurozone and has sought to ensure Greece continues to improve its finances.

- 'Tricky negotiations' -

Tsipras said the final days of negotiating a deal could prove tricky and called for "composure and determination."

"We have to deal with three different institutions who frequently have conflicting views," he said, referring to the EU, the IMF and the European Central Bank.

EU sources were not confirming a deal for the time being, noting that a meeting in Brussels between experts from the two sides had been delayed by several hours.

European Commission Vice-President Valdis Dombrovskis had earlier said there were important areas still to be resolved.

"Of course there are a number of important areas to be discussed, in terms of fiscal targets, primary surplus targets, fiscal measures... issues related to pension reform... the labour market," he said.

The framework deal according to Athens will include low primary surplus targets for Greece, VAT reform, a pension system overhaul and debt relief, the Greek government source said.

- IMF economist urges flexibility -

Low targets for the primary surplus -- the government budget surplus before counting in payments on the national debt -- would free up more money for social spending, and the Greek government has been adamant there will be no further cuts to salaries and pensions.

But even low primary surplus targets may be difficult to achieve as the uncertainty generated by the snap elections and four months of talks has seen the Greek economy fall back into recession.

The IMF's chief economist, Olivier Blanchard, told German daily Handelsblatt that for Greece to get out of its crisis it needed more help.

While he said credible reforms were needed from Greece, Blanchard said the IMF was flexible on this point.

Jonathan Loynes, chief European economist at Capital Economics, argued that Greece's European creditors were unlikely to approve an extensive restructuring of Greek state debt, which currently exceeds 312 billion euros and is expected to rise to 180 percent of GDP this year.

"Nothing short of a major write-down will make a material difference to Greece's debt outlook and we very much doubt that the European Commission and the ECB have signed up to such an outcome," Loynes said in a note.

"As such, we maintain our position that any deal which emerges over the coming days is likely to be nothing more than a stop-gap and will not address the fundamental issue of Greece's contracting economy and expanding debt mountain," he said.
Source: AFP