Greece, creditors get closer on terms of bailout

BRUSSELS (AP) – Greece and its creditors moved closer to clinching a deal this weekend that would allow the cash-strapped country avoid a default and stay in the euro currency club, after Prime Minister Alexis Tsipras made more concessions, officials said.

Greece has agreed to reforms that are very close to what creditors have demanded before they release new loans, officials said on condition of anonymity because of the sensitivity of the negotiations. The creditors in return offered Greece a five-month extension to its bailout program, which was supposed to end Tuesday.

The concessions come only days after Greece proposed 8 billion euros in budget savings over two years. The creditors, particularly the International Monetary Fund, said those proposed measures were not good enough, arguing they rely too much on business taxes that could hurt growth.

Friday’s latest proposals brought the sides much closer together, enough for some to anticipate that an emergency meeting on Saturday of the eurozone’s 19 finance ministers could bring a decisive breakthrough.

“Tomorrow’s meeting is of decisive character,” German Chancellor Angela Merkel said after meeting Tsipras and French President Francois Hollande.

European Commission President Jean-Claude Juncker agreed. “There is a real chance to conclude an agreement,” he said, adding that Saturday was “a crucial day not only for Greece but for the euro area as a whole. I’m quite optimistic but not overly optimistic.”

Under the latest proposal, Athens said it will cut spending on pensions, a key requirement by creditors. Greece will reduce the contribution from the state to pensions by between 0.25 percent and 0.5 percent of GDP this year and by 1 percent next year.

An official from one of the creditor institutions said that if you assess both sides “the difference now is very, very small.”

According to the text of creditors’ proposals seen by The Associated Press, Athens was offered an extension to its bailout program through November, with loans worth 15.5 billion euros. That includes 7.2 billion euros from the existing rescue program and money left over from a bank rescue fund.

A Greek government official expressed dissatisfaction with the terms, saying it amounted to Greece accepting to make more cuts in return for existing bailout funds that would just cover its needs.

The official said the government was pushing for an improved proposal on Saturday.

Markets nevertheless rose on news of the concessions, with the Athens stock index up 2 percent in late afternoon trading and other major European indexes edging higher.

“The gap between Greece and its creditors looks much smaller now that Greece has caved on some of its proposed pension reforms,” said Megan Greene, chief economist at Manulife Asset Management.

Greece has to pay 1.6 billion euros to the IMF on Tuesday. Should it default on its debt, the country could eventually have to leave Europe’s joint currency, the euro. That would likely plunge Greece back into a deep and long recession and shake European and global markets.

“It really has to happen tomorrow,” said Jeroen Dijsselbloem, president of the eurogroup of finance ministers, since any deal would have to go through the parliaments of Greece and several other eurozone countries.

Tsipras, elected in January on promises to repeal the deep austerity measures imposed on the country in return for two bailouts totaling 240 billion euros, has long been adamant he would not agree to more measures that would hurt the economy. But faced with the prospect of a national default, he is having to compromise.

Business leaders in Greece have been alarmed by the latest measures Tsipras has proposed, which include increases in company and consumer taxes.

“The trust has to return and that requires a deal, it requires a number of reforms and they will have to accept that,” Dijsselbloem said.

Separately, a banking official said the European Central Bank had agreed Friday to a request for support to Greek banks. The official declined to specify whether the request was for an increase in the emergency credit Greek banks have been receiving.

Worried depositors have been pulling their money out of Greek banks, fearing a failure in the negotiations could lead to financial turmoil and a restriction on banking transactions. An estimated 4 billion left Greek banks last week.