Greek Debt Talks Stumble Before EU Leaders Gather

Negotiations to avert a Greek debt default stumbled on Wednesday and euro zone finance ministers accused Athens of refusing to compromise despite a deadline next week that could put it on a path out of the euro zone.

With European Union leaders due in Brussels for a summit on Thursday, leftist Greek Prime Minister Alexis Tsipras was set to negotiate through the night with heads of creditor institutions to try to thrash out a cash-for-reform deal before the euro zone ministers reconvene at 1 p.m. (1100 GMT).

Greece has to repay 1.6 billion euros to the International Monetary Fund next Tuesday or be declared in default, potentially unleashing a bank run and capital controls, followed by a slide out of the single currency area.

Eurogroup ministers cut short an emergency meeting summoned to approve an agreement after little more than an hour because there was no deal ready for them to discuss.

"Unfortunately we have not reached an agreement yet, but we are determined to continue work, this work will go on during the night if necessary," Eurogroup chairman Jeroen Dijsselbloem told reporters.

Ministers voiced exasperation at being summoned to Brussels again only to be kept waiting while Athens, the weakest link in the 19-nation currency area, resisted measures regarded by its lenders as essential to balance its public finances and make its economy more competitive.

Slovakian Finance Minister Peter Kazimir brandished a book as he arrived for the meeting, saying that at least he had brought something to read while they waited.

"We are prepared to work all night, but we had nothing real to work with," another euro zone official said. "The loss of trust is becoming extreme. It is hard to see how we can go on."

Tsipras had spent the whole afternoon with European Commission President Jean-Claude Juncker, IMF head Christine Lagarde, European Central Bank chief Mario Draghi and Dijsselbloem without achieving a breakthrough.

By the time the 19 Eurogroup ministers gathered, the negotiators had been unable to produce a draft text due to wide differences over pension reform, taxation, labour law, public sector wages, the opening of closed professions, and investment.

"We have not been able to throw anything back at anyone because there's nothing on the table," Finnish Finance Minister Alexander Stubb told reporters.

Officials said the talks could drag on for another two days but without a deal by Saturday, endorsed by Greek lawmakers and a vote in the German parliament on Monday, Greece may not get the cash to meet Tuesday's repayment deadline. Its EU/IMF bailout expires the same day.

DEBT RESTRUCTURING DISPUTE

Among key unresolved disputes were Greek demands for debt restructuring, which several euro zone ministers rejected, and differences over reforming Greece's costly pensions system.

German Finance Minister Wolfgang Schaeuble, whose country is Athens' biggest creditor, said preparations for an agreement had barely advanced. His Austrian colleague was one of several to say Greek demands for debt relief were a problem.

A Greek official said the creditors' counter-proposals, handed to Athens on Wednesday morning and rapidly leaked on the Internet, were not acceptable as they stood, but Tsipras hoped for an agreement on Thursday [ID:nL8N0ZA3Q5]

Before leaving Athens, he had attacked "certain" creditors in a swipe at the IMF, for rejecting fiscal measures Athens put forward to plug a budget gap.

"This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed," the premier tweeted.

Financial markets reacted anxiously, with investors rushing into safe-haven German bonds [GVD/EUR] and the euro suffering a brief sell-off. European and U.S. shares fell. [FRX/] [.N]

Lagarde spelled out her objection to Greek proposals centered on higher taxes to plug the budget gap.

"You can't build a programme just on the promise of improved tax collection, as we have heard for the past five years with very little result," she told French magazine Challenges.

A Greek official said the lenders' five-page document, full of crossings-out and underlining in red ink, rehashed their previous offer and took scant account of Athens' proposals.

In Athens, State Minister Alekos Flabouraris, considered close to Tsipras, told the ruling Syriza party's political committee the creditors' revised list of demands was "absurd".

DEFAULT CONSEQUENCES

Looking tense, Tsipras was driven into European Commission headquarters through an underground garage to avoid the usual arrival statements, and given only a perfunctory handshake by Juncker before plunging into the meeting.

The normally talkative Greek leader did not speak to reporters all day, a sign of the fierce pressure he faces from leftists in his party not to yield to the creditors' demands.

The Greek proposals featured a series of tax rises on consumption, businesses and the wealthy, as well as higher contributions to pensions to meet budget targets. The IMF wants to see more savings achieved through budget cuts.

A senior German official said Berlin could not imagine accepting a deal without the IMF, which was needed not only for its funds but also its expertise.

Greece will have to put the agreed measures through its parliament by Monday so that some other euro zone parliaments can endorse the deal and unblock aid funds.

EU officials said the only way to fund next week's IMF repayment was for euro zone governments to hand over nearly 2 billion euros in profits from ECB holdings of Greek government bonds purchased in 2011-12.

EMERGENCY HELP

The more concessions Tsipras makes, the more resistance he will face in parliament within his coalition and on the streets, where recent protests, some organised with Syriza's support, have underlined opposition to yet more belt-tightening.

"There are four people in my household, and we are living on 600 euros a month. Where else does that happen?" said Antonia Methoniou, 59, who took early retirement on health grounds.

The IMF says Greece will need either some form of debt restructuring or further loans to make its finances sustainable.

But euro zone officials insisted the creditors would not discuss any debt restructuring until after Greece implements the remainder of its bailout programme, and German Chancellor Angela Merkel has ruled out any "haircut" or debt write-off.

This will add to the difficulty of getting parliamentary approval in Athens, notably from the nationalist Independent Greeks, whose support Tsipras needs for a majority.

They also reject moves to scrap VAT exemptions enjoyed by some Greek islands.

"I could not vote for such a measure, nor, obviously, could I participate in a government violating a line on which we received a mandate from the Greek people," party leader Panos Kammenos tweeted on Tuesday.

But Economy Minister George Stathakis said he was confident parliament would back a deal by June 30: "I think this balanced deal is defensible to Syriza, and in Greek society too."

(By Jan Strupczewski and Alexander Saeedy; Additional reporting by Karolina Tagaris, George Georgiopoulos and Michele Kambas in Athens, John O'Donnell in Frankfurt and Renee Maltezou, Marine Hass, Philip Blenkinsop, Robert-Jan Bartunek, Tom Koerkemeier and Alastair Macdonald in Brussels; Writing by Paul Taylor and Alastair Macdonald; editing by James Mackenzie, Kevin Liffey, Janet McBride, Philippa Fletcher)