Stakes raised as Greece, lenders resume talks on bailout loan

By Harry Papachristou

ATHENS | Mon Jul 1, 2013 4:13am EDT

(Reuters) - Greece and its international lenders resume talks on Monday to unlock 8.1 billion euros ($10.5 billion) of rescue loans after a two-week break during which the government almost collapsed over redundancies at state broadcaster ERT.

Prime Minister Antonis Samaras has said he expects the talks to conclude successfully, despite setbacks to the country's privatization program and delays in public sector reforms.

To pressure Athens to deliver on reforms, the trio of lenders might refuse to pay the full sum in one go and break it up into three monthly payments instead, Greek media reported.

"The biggest issue in the negotiations will be the delays in public sector reforms," a senior finance ministry official told Reuters.

Athens missed a June deadline to place 12,500 state workers into a "mobility scheme", under which they are transferred or dismissed within a year.

The country is battling through its sixth year of recession, and the latest installment is one of the last big cash injections it stands to get before the 240-billion-euro bailout expires at the end of 2014.

The stakes are high. If the talks fail, the International Monetary Fund might have to withdraw from Greece's rescue to avoid violating its own rules. Athens also needs to redeem about 2.2 billion euros of bonds in August.

Finance Minister Yannis Stournaras will have his first meeting with representatives of the troika of lenders - the IMF, European Union and European Central Bank - at 1400 GMT.

Samaras wants to wrap up the talks quickly for the funds to be released by the end of this month. He appointed two reformers, Kyriakos Mitsotakis and Adonis Georgiadis, in a cabinet reshuffle last week to push for reforms at key ministries, civil administration and health.

"The lenders will give us trouble but less so than in previous reviews," one government aide told reporters on Sunday.

MISSING TARGETS

The government plans to ask its creditors to lower this year's privatization target of 2.

A shortfall of more than 1 billion euros has emerged at state-run health insurer EOPYY, meaning automatic spending cuts may have to be agreed to bring it back on an even keel.

Athens and the troika are also at loggerheads over an unpopular property tax and a possible reduction in a sales tax for restaurants.

Samaras has ruled out imposing new austerity measures after losing a coalition partner in the ERT crisis, with his majority in the 300-seat parliament shrinking to just three votes.

More measures would be impossible to steer through parliament, analysts and lawmakers have said, after four years of austerity that plunged Greece into its deepest peacetime recession with the jobless rate at a record 27 percent.

The economic crisis has also boosted support for anti-bailout parties such as the ultra-right Golden Dawn.

According to Greek officials, the country has enough spare cash to offset any short-term slippages in the bailout plan.

But even if it clears this review, Athens will require additional help after the bailout ends.

According to provisional EU/IMF estimates for 2015-2016, Greece must plug a budget shortfall of about 4 billion euros and a funding gap of up to 9.5 billion. These estimates are to be updated later this year.

The euro zone has already pledged to shave off part of Greece's debt to make it sustainable in the long term. But it is still unclear how much debt will be written off and how.

($1 = 0.7693 euros)

(Additional reporting by Tatiana Fragou; Editing by John Stonestreet)