Euro zone, IMF make progress on Greece: Juncker

Euro zone governments and the International Monetary Fund (IMF) are making headway in settling a row over how to make Greece's debt manageable, Eurogroup President Jean-Claude Juncker said on Saturday.

"I expect us to go the rest of the distance with the IMF," Juncker told Reuters on the sidelines of an event in north-western Germany.

"We are working intensively on a compromise with the IMF on Greece and are making progress," he said, adding it remained to be seen how much the differences had been narrowed by Tuesday's meeting of euro zone finance ministers and the IMF.

The dispute is holding up the release of 31 billion euros ($39.39 billion) in emergency loans needed to keep Greece afloat.

Greece's international lenders agreed on Monday to give Athens two more years to make the cuts demanded of it but the euro zone and IMF clashed over a longer-term target to shrink the country's debt, reigniting fears of bankruptcy.

IMF officials have argued that some writedown of Greek debt for euro zone governments is necessary to make Greece solvent but Germany, the biggest contributor to the bloc's bailout funds, rejects the idea of taking a loss on its Greek debt holdings, arguing it would be illegal.

Several leading German economists called for a "haircut" for Greece in an article to be published in Welt am Sonntag.

"A haircut for Greece is unavoidable," said Clemens Fuest, designated head of the ZEW economic think tank. "The question is no longer whether but when this step will come."

Peter Bofinger, on the German government's panel of economic advisers, said there was no alternative. "Without such a move, the country won't get back on its feet," he told the paper.

The IMF also disagrees with an idea from euro zone finance ministers to give Greece until 2022, rather than 2020, to lower its debt to gross domestic product ratio to 120 percent.

Juncker also took aim at Austria, Germany and the southern German state of Bavaria on Saturday for suggesting that a Greek exit from the euro zone was looming.

"Threats in the Austrian, German or Bavarian language that Greece will soon leave the euro zone do not do Greece any good," he said in his speech. "We must show solidarity with Greece and watch our words."

Some politicians from Chancellor Angela Merkel's coalition partners, the Free Democrats (FDP) and Bavarian Christian Social Union (CSU), have again sharpened their rhetoric against Greece as fears grow about a new flare-up of the euro zone debt crisis.

On Saturday Deutsche Bank co-chief Juergen Fitschen warned at a conference that "we are still in the middle of the crisis, we are not through it yet."

Merkel's opposition Social Democrat (SPD) challenger in next year's election, Peer Steinbrueck, said at the same conference when markets realized that announcements made by European Union leaders in the summer would not be implemented "the carousel will start turning again."

However, Juncker said the European Central Bank had helped to calm euro zone nerves with its pledge to buy up debt from states such as Spain and Italy and their lower borrowing costs.

($1 = 0.7871 euros)

(Additional reporting by Gernot Heller; Writing by Madeline Chambers. Editing by Jane Merriman)