Greece, creditors fail to reach deal as deadline looms

Greek Prime Minister Alexis Tsipras and his country’s creditors failed to reach a bailout deal at emergency talks Thursday, raising fresh fears that Athens will default on an IMF loan next week.

The differences remain so great despite two days of marathon negotiations that the EU-IMF lenders and Greece will present rival reform proposals to eurozone finance ministers later in Brussels, sources told AFP.

“The Greeks have rather made steps backward. Positions are even further apart rather than narrowing,” Germany’s influential Wolfgang Schaeuble said ahead of a meeting of eurozone finance ministers.

European Commission President Jean-Claude Juncker said he was “tired to death” after talks with leftist leader Tsipras and the heads of the European Central Bank and International Monetary Fund late Wednesday and early Thursday.

The aim was to finalise a deal in time to have it approved by EU leaders meeting at a summit in Brussels on Thursday night, ahead of a June 30 payment deadline for a 1.5-billion-euro ($1.7 billion) IMF loan repayment.

But they produced no breakthrough in the five-month standoff between the anti-austerity Greek government and the creditors, who have refused to release 7.2 billion euros in bailout funds unless Greece promises new reforms.

“There will be two texts” at the Eurogroup meeting of eurozone finance ministers, a Greek government source said. “It’s a sign of the big distance between Greece and its creditors.”

– Tough stance –

European stocks rose on early optimism about a deal but Asian stocks slid on Thursday over fears of the global economic fallout from a possible default by Greece.

The disagreements have centred on spending cuts, VAT and pensions, which Greece says it can ill afford after two punishing EU-IMF bailout programmes since 2010 worth 240 billion euros.

Discussions have become increasingly acrimonious as the deadline looms and on Wednesday Greece withdrew some of its reform proposals, apparently for the first time since negotiations began.

Greek government sources said two were withdrawn from the list under pressure from Tsipras’s left-wing Syriza party, including an unpopular increase in pensions contributions.

The Greek side is seeking to offset the impact of the changes with other measures, sources said.

Tsipras was elected in January vowing to end five years of bailout austerity in Greece exacerbated by long-term recession and high unemployment.

He took a characteristically tough stance on Wednesday, lashing out at creditors just minutes before meeting with Juncker, IMF chief Christine Lagarde and European Central Bank boss Mario Draghi.

“This strange position maybe hides two things: either they do not want an agreement or they are serving specific interests in Greece,” Tsipras said.

EU President Donald Tusk warned last week of the growing risk of a “chaotic, uncontrollable Grexident” — Greece crashing out of the euro and perhaps also the EU, which it joined in 1981.

– Pensions, taxes, cuts –

The new plans submitted Sunday by Greece aim make an eight billion euros in savings, mostly through new taxes on the wealthy and businesses, VAT increases and a cut in defence spending.

But in counter-proposals handed to Greece on Wednesday, creditors are calling for early retirement to be abolished and an increase in the retirement age from 62 to 67 by 2022, not 2025.

Despite Athens’ fears for its tourism sector, creditors are sticking to demands for a 23 percent value-added tax rate for restaurants, instead of the current 13 percent.

Creditors also propose to increase the corporation tax rate and they want defence expenditure to be slashed by 400 million euros instead of the proposed 200 million euros.

Greece’s banking system has been kept afloat by cash injections from the ECB as wary Greeks withdraw their deposits. On Wednesday the ECB increased emergency liquidity funds for the fifth time in eight days.

Athens has also warned any accord would need to be approved by parliament before June 30, which risks splitting Tsipras’s Syriza party, where many on the left wing view him as reneging on campaign promises.

Any Greek agreement will also need to deal with what comes next, with EU officials suggesting an extension of the bailout until the end of the year, followed by a possible third aid package to keep Greece afloat.