Creditors Prepare 'Final' Text of Greek Bailout Deal

EuropeDow Jones Newswires

Greece's international creditors late on Monday were preparing the final text of a bailout deal to present to the Athens government, in a sign that lenders are running out of patience after months of stalled talks.

Officials from European institutions and the International Monetary Fund sent a draft text on the economic overhauls that Greece needs to implement to unlock bailout financing to a meeting in Berlin of key European leaders, according to people familiar with the matter.

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Leaders including German Chancellor Angela Merkel, French President François Hollande, IMF head Christine Lagarde and European Central Bank President Mario Draghi were gathered in Berlin on Monday night in an effort to work out what one official involved in the talks called a "final" offer to Greek Prime Minister Alexis Tsipras.

After balking at accepting painful belt-tightening measures during months of fruitless talks, Mr. Tsipras now appears likely to be offered a draft agreement that presents him with a stark dilemma. Rejecting it could plunge Greece into default, capital controls and a potential exit from the euro. Accepting it could split his leftwing Syriza party, which won election in January on a promise to stop and reverse the austerity that Greece's lenders have forces the country to accept as the price of emergency loans since 2010.

Officials from Greece's creditors have said not enough progress has been made in talks with Greece's government so far, with key differences persisting on thorny issues such as pension and labor-market overhauls as well as on the size of the country's primary budget surpluses--which exclude interest payments--over the next few years.

The draft agreement aims at setting out what reforms Athens needs to agree in order to access its next slice of financial aid of up to EUR7.2 billion ($7.9 billion), which Greece needs to avoid defaulting on its debts by July at the latest.

Greece is under pressure to agree to creditors' policy demands as it runs dangerously low on cash. Athens is believed to have enough cash left to repay a EUR300 million loan to the International Monetary Fund on June 5, but probably won't have enough to cover three further repayments due mid-June.

Earlier on Monday Germany signaled a tough stance in the showdown on Greece's bailout package, doubling down on demands for broad economic overhauls ahead of a top-level meeting in Berlin.

German Chancellor Angela Merkel's spokesman Steffen Seibert told reporters Greece has to agree to a "far-reaching reform package." The finance ministry echoed the call, saying Greece must overhaul its labor market, make changes to its service sector and pursue privatization.

"The aim of these individual measures is to restore Greece's debt sustainability," German Finance Ministry spokesman Martin Jäger said.

In public, Greece continues to reject the demands of its creditors--led by the IMF and Germany--for painful economic belt-tightening, including cuts to pensions entitlements and short-term fiscal austerity measures.

Mr. Tsipras's leftwing Syriza party was elected in January on a promise to end and reverse such measures. In an article for French newspaper Le Monde published on Sunday, Mr. Tsipras wrote: "The lack of an due to the insistence of certain institutional actors on submitting absurd proposals and displaying a total indifference to the recent democratic choice of the Greek people."

But European officials familiar with the negotiations say the Athens leadership is beginning to show greater flexibility in private discussions on pensions and other difficult issues, signaling that it knows it will have to make painful concessions. The officials say a deal will require turning those signals into concrete policy measures, including curbing pension costs that are straining Greece's budget. And even once a policy package is agreed, Mr. Tsipras could face a rebellion from parts of Syriza over concessions that go against the party's ideology and election promises.

A failure of the talks with creditors could force Greece to leave the euro, Europe's common currency, economists say. With the deadlines approaching, jittery European officials are increasingly speculating in the open about the consequences of such an outcome.

Watching closely is the public in Germany, where politicians and news media have questioned the wisdom of putting billions more taxpayer euros on the line for Greece and have criticized the Tsipras government's aggressive negotiating style.

Mr. Juncker, who heads the European Union's executive arm, said in a German newspaper interview published Monday that a Greek exit from the euro "is not an option" in part because it would damage international faith in the currency.

Mr. Juncker's chief of staff, Martin Selmayr, said in a talk in Berlin on Monday that Greece leaving the euro would lead to the country going bankrupt, which would in turn touch off a crisis that Europe would probably need to address with development aid.

"For the German taxpayer, it won't be cheaper, guaranteed," if Greece were to leave the euro, Mr. Selmayr said. There is no alternative to reaching an agreement with Athens, he added, "because the alternative would be even worse than to make compromises now."

Anton Troianovski in Berlin contributed to this article.

(By Victoria Dendrinou in Brussels and Marcus Walker in Athens)