April 17, 2015 / 12:09 AM / 4 years ago

Greece mixes defiance, compromise as lending deal slips away

WASHINGTON (Reuters) - Greece on Thursday sounded a mix of defiance and willingness to compromise with its international creditors on reforms required to unlock more loans, as it faces running out of money ahead of debt repayments next month.

Cut off from markets and refusing so far to accept the terms set by its lenders, the Greek government may have to choose in the next few weeks to pay salaries and pensions or repay International Monetary Fund loans.

Its official creditors - the euro zone and the IMF - have frozen bailout aid until the new leftist-led government in Athens reaches agreement on a comprehensive package of reforms.

A deal had been pencilled in for an April 24 meeting of euro zone finance ministers in Riga, but it now seems too ambitious, officials said.

That has raised fears the Greek government will not be able to make its next payments to the IMF, which total some $1 billion (0.67 billion pounds) over the next month. Missing an IMF payment could mean default and, eventually, an exit from the euro zone.

European Commissioner for Economics and Monetary Affairs Pierre Moscovici reiterated on Thursday that a Greek exit from the single currency would be a catastrophe, but said its economic effects would be manageable for other euro zone members.

Greek Prime Minister Alexis Tsipras told Reuters in Athens on Thursday he was “firmly optimistic” about reaching an agreement with creditors by the end of April despite friction over issues such as pension and labour reforms.

But Greek Finance Minister Yanis Varoufakis, attending the spring meetings of the IMF and World Bank in Washington, was quick to nuance the message of a government that rose to power on promises of ending fiscal austerity.

“We are going to compromise, compromise, compromise, without being compromised,” he told a seminar at the Brookings Institution. “We will not sign up to targets we know our economy cannot meet by means of policies that our partners should not wish to impose,” Varoufakis said.

Yet the very reforms that Greece so vehemently disputes are the ones that its creditors believe are indispensable.

IMF Managing Director Christine Lagarde said Greece must reform its pension system because the current one is not sustainable, fix its tax system and liberalize its product and service markets to introduce more competition.

Euro zone governments, who are Greece’s biggest creditors, had hoped to agree with Athens on a comprehensive list of reforms by the time of the Riga meeting.

Were that meeting to declare such a list to be in line with expectations, euro zone governments could have lent Athens more money once the proposals on the list were implemented by the passage of laws in Greece’s parliament.

But any disbursement decisions for next week now seem unrealistic, euro zone officials said. Chances of Athens getting any money on the basis of a narrower list of reforms, not the comprehensive, final deal, were equally slim, officials said.

A Greek national flag flutters atop the parliament building in Athens April 7, 2015. REUTERS/Alkis Konstantinidis

“We need an agreement on a comprehensive package of commitments,” one euro zone official close to the talks said.

“I expect things to accelerate over the next two weeks,” the official said, adding that an extraordinary meeting of euro zone finance ministers on the issue was not out of the question before the next scheduled meeting on May 11.

Additional reporting by Jason Lange, Anna Yukhananov and Randall Palmer; Writing by Jan Strupczewski; Editing by Tim Ahmann, Andrea Ricci and Paul Simao

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