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BRUSSELS (Reuters) - Greece and its international lenders made clear progress on Friday towards bridging differences over its fiscal path in coming years, moving closer to a deal that would secure new loan disbursements and save the country from default.
Greek Finance Minister Euclid Tsakalotos met with the chairman of euro zone finance ministers Jeroen Dijsselbloem and top officials from the European Central Bank, the euro zone bailout fund, the European Commission and the International Monetary Fund to break a two-month deadlock in talks.
"We made substantial progress today and are close to common ground for the (lenders') mission to return to Athens the coming week," Dijsselbloem said.
The mission of experts will report on whether Greece has complied with a second batch of reforms agreed under the current bailout, its third.
A favourable report would clear the way for euro zone finance ministers to disburse new loans, without which Greece would default on its debt in July when it faces a 7.2 billion euro repayment.
"There is a clear understanding that a timely finalisation of the second review is in everybody's interest," Dijsselbloem said, in an apparent reference to differences between the IMF, Greece and the euro zone on needed reforms and fiscal targets.
The perception that the IMF and euro zone lenders appeared to narrow their differences and sat down to discussions with Greece brought investors back into the Greek debt market and Greek bond yields fell sharply.
Dijsselbloem did not disclose details of the talks, but euro zone officials said earlier on Friday the lenders would ask Greece to take 1.8 billion euros - or 1 percent of GDP - worth of new reforms by 2018 and another 1.8 billion euros after then.
The measures would be focused on broadening the tax base and on pension cutbacks -- politically a tough sell in Greece where pensioners have already gone through 11 pension cuts since the start of the crisis in 2010.
The aim of the additional reforms is to ensure that Greece reaches a primary surplus - which excludes debt payments - of 3.5 percent of GDP next year and maintains it for years afterwards. How many years remains to be agreed.
Such an approach is likely to help secure the participation in the bailout of the IMF, which has been doubtful if Greece could reach and keep to such surpluses with steps agreed so far.
Euro zone officials were sceptical, however, if the mission to Athens can sign off on all the reforms and produce a staff level agreement by the end of the week, in time for euro zone finance ministers to approve the report on Feb. 20.
This was because Greece still needed to complete up to three-quarters of the prior actions required to access the next 6.1 billion euro instalment of aid, one official said.
Dijsselbloem left the issue open in his statement.
"We will take stock of the further progress of the second review during the next Eurogroup (meeting)," he said.
Time is tight because the Netherlands, where Dijsselbloem is finance minister, have parliamentary elections in March and if a deal with Greece is delayed, it may face difficulties in getting the necessary approvals because the Dutch parliament goes into recess on February 23rd.
Yet more reforms are hard to swallow in Greece which has only just emerged from a multi-year recession brought on by the debt crisis and the austerity demanded in exchange for three bailouts.
Greece's unemployment rate is 23 percent and while year-on-year GDP growth was 1.8 percent in last year's third quarter, the economy contracted at a rate of more than 10 percent earlier in the decade.
Additional reporing by Lefteris Papadimas in Athens and Stephanie van der Berg in Amsterdam Writing by Jeremy Gaunt; Editing by Robin Pomeroy and John Stonestreet