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UPDATE 1-Euro zone to unblock new Greek loans, but debt relief still distant
May 24, 2016 / 8:46 PM / a year ago

UPDATE 1-Euro zone to unblock new Greek loans, but debt relief still distant

* Finance ministers to OK Greek reform review in principle

* Technical tweaks needed before next loan tranche paid

* Euro zone still at odds with IMF over debt relief (Adds draft agreement on new loans)

By Jan Strupczewski and Francesco Guarascio

BRUSSELS, May 24 (Reuters) - Euro zone finance ministers are likely to approve new loans to Greece worth some 10.3 billion euros in two instalments, according to a draft statement seen by euro zone officials during a meeting on Tuesday.

The disbursements, one next month worth 7.8 billion euros and a second of 2.5 billion later, acknowledge fiscal reforms Athens has undertaken this year. But the ministers were still far from committing to the debt relief that the International Monetary Fund says Greece should also have.

Euro zone officials said Greece has implemented all the economic reforms required for new disbursements, though absolutely final approval is likely to depend on unspecified "technical corrections" to aspects of the Greek legislation.

The ministers, who continued to debate the issue late into the evening in Brussels, were therefore likely to ask their deputies to oversee the further required amendments over the next week or two before giving the final go-ahead.

"I'm expecting an agreement in principle on Greece, subject to some technical review in the next couple of weeks," Irish Finance Minister Michael Noonan told reporters.

Greece's needs another tranche of bailout funds by mid-July at the latest to avoid defaulting on debt repayments to the IMF and the European Central Bank.

Athens' debt servicing costs will become progressively less manageable over coming decades, and the ministers were also due on Tuesday to discuss relief on the debt pile, most of which is held by the euro zone bailout fund.

But any agreement beyond a tentative "roadmap" on that issue is unlikely, official said.

A group of countries led by Germany - where aid for Greece is politically contentious - argue that any firm commitments on euro zone debt that Greece does not have to start servicing until 2023 would remove the incentive to continue with reforms.

DEBT RELIEF DILEMMA

The IMF, which has yet to sign up to the current Greek bailout, insists that Athens needs substantial debt relief and that binding decisions have to be taken before the package ends in 2018.

"Providing an up-front unconditional component to debt relief is critical to provide a strong and credible signal to markets about the commitment of official creditors to ensuring debt sustainability," the Fund said in a report on Greece.

But Germany believes a detailed discussion on debt relief can be held later, and should be made conditional on Greece's progress with reforms and on data.

Finance Minister Wolfgang Schaeuble told reporters he was also not willing to commit to any action after next year, when Germany holds parliamentary elections.

"We will take the decisions when they need to be made. Now I have the legitimacy and in 2018 it will be for those whom the German people have chosen in 2017," Schaeuble said.

On May 9, euro zone finance ministers offered to consider debt relief after the reform review was complete with a view to offering, if necessary, relief from 2018, if the country had delivered on all reforms by then.

Officials said on Tuesday that an outline text of an agreement on debt measures was likely to take a similar line.

"We see the outcome as a roadmap of potential measures and preconditions," a senior euro zone official said.

To facilitate a deal on Greece, the chairman of euro zone leaders' meetings, Donald Tusk, met earlier on Tuesday with the head of euro zone finance ministers, Jeroen Dijsselbloem, the President of the European Central Bank Mario Draghi and the head of the European Commission Jean-Claude Juncker.

"I am cautiously optimistic. A positive outcome for the euro zone and a satisfactory one for Greece is in the cards," a second senior euro zone official said after that meeting.

$1 = 0.8966 euros Additional reporting By Phil Blenkinsop and Tom Koerkemeier; Editing by Alastair Macdonald

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