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BRUSSELS (Reuters) - An agreement on Greek pension and income tax reforms reached on Tuesday morning paves the way for discussions on debt relief for Athens, the European Stability Mechanism, the euro zone's bailout fund, said in a statement.
"Staff teams from the European Commission, European Stability Mechanism, the European Central Bank and the International Monetary Fund have reached a preliminary agreement with the Greek authorities on a policy package to support the recovery in Greece, and which will be the basis for concluding the 2nd review of the ESM stability support programme," it said.
"The Greek authorities have confirmed their intention to swiftly implement this policy package. This preliminary agreement will now be complemented by further discussions in the coming weeks on a credible strategy for ensuring that Greece's debt is sustainable," the fund said.
Euro zone finance ministers agreed in May 2016 on criteria for stretching out maturities on Greece's loans and the grace period before Athens has to start paying interest on them.
They also agreed that Greek gross financing needs should be kept below 15 percent of its annual economic output in the medium term and below 20 percent beyond that.
Such debt relief could be granted in 2018 if Greece meets all the targets of the bailout and if a debt analysis shows that it is necessary to make Greek debt sustainable in the long-term.
The IMF has been insisting debt relief is necessary. Germany has maintained that if Greece keeps a large enough primary surplus for long enough, it can manage without any debt relief. What primary surpluses Greece can achieve and for how long is a consequence of the reforms it undertakes.
"This second review is strategic for Greece as it not only delivers on key reforms to modernise the Greek economy but also secures a credible fiscal path for the years to come, beyond the ESM programme," European Commissioner for Economic and Financial Affairs Pierre Moscovici said.
"It is now for all partners to reach an understanding on the question of Greece's debt in the coming weeks," he said.
Agreeing on the terms of debt relief from 2018 is a condition of the IMF to join the Greek bailout, now shouldered by euro zone governments alone. Germany wants the IMF to join, to add credibility to the reform process.
Reporting By Jan Strupczewski; editing by Robert-Jan Bartunek, Larry King