Greece and Its Creditors Agree on Some Measures in Bailout Talks

‘Combative’ negotiations resume after ‘some aspects of a financing deal’ agreed overnight

The Wall Street Journal

By GABRIELE STEINHAUSER in Brussels and  NEKTARIA STAMOULI in Athens

Updated June 4, 2015 6:51 a.m. ET

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BRUSSELS—Greek Prime Minister Alexis Tsipras and his country’s international creditors were able to agree on some aspects of a financing deal at a meeting Wednesday night, but differences remain on some key issues, European officials said Thursday.

“The next hours, the next days…are absolutely essential,” said Pierre Moscovici, the European Union’s economics commissioner. “I would say I’m optimistic.”

Mr. Tsipras will submit a counter offer to his country’s creditors, including the rest of the eurozone and the International Monetary Fund, two officials said. They spoke after the Greek prime minister held late-night talks with European Commission President Jean-Claude Juncker and Jeroen Dijsselbloem, the Dutch finance minister who represents the currency union’s national governments in the talks.

The Greek leader is now scheduled to meet with Mr. Juncker again “in coming days,” Mr. Juncker’s spokesman Margaritis Schinas said. “They agreed to meet again, intense work will continue.”

Officials warned that Greece and its creditors still have issues to resolve before a deal is struck.

“Proposals and counter proposals are part of the combative negotiations that are ongoing,” one official said.

“Yesterday we saw some convergence in a few points, but not on others. It will be difficult,” the official added.

After the meeting, which ended in the early hours of Thursday, Mr. Tsipras said that he was content with new budget targets presented by the creditors, which are below those in his country’s existing bailout deal. But he rejected proposals for further cuts to pensions and increases to value-added tax, which creditors insist will be central to meeting budget targets and bringing Greece’s finances onto a sustainable path.

One European official said Mr. Tsipras didn’t give an outright “no” even on the pension and VAT proposals during Wednesday’s talks. “It is an issue for negotiations,” the official said.

A Greek official said talks between both sides have to conclude by June 14 at the latest. “This is the date the commission gave,” the official said.

Greece’s cash-strapped government has been waiting for months for a €7.2 billion ($8.05 billion) payment from its €245 billion international bailout. Without at least part of that money it is expected to default on debt repayments to the IMF later this month.

European officials said Thursday that lenders can sweeten the offer to Greece only marginally. The IMF insists that less-ambitious targets for fiscal austerity and pension overhauls would fail to curb Greece’s soaring debt, forcing European governments to restructure their loans to Athens—which Germany and others flatly reject.

One official suggested that Athens may be able to move some goods from the higher VAT rate to the lower one, but that revenue shortfalls would then have to made up elsewhere.

“There could be found, here and there, some equivalent measures,” said a second official.

Losing the IMF’s support for a deal would seriously call into question the credibility of the Greek bailout in Germany, making it hard for German Chancellor Angela Merkel to justify further aid for Athens.

But the terms for Greece that Germany and the IMF could agree on—tough retrenchment without debt relief—are the opposite of what Greece’s ruling Syriza party was elected to deliver. Mr. Tsipras could face a revolt by Syriza’s left wing hard-liners if he tries to impose the lenders’ terms, European officials admit, saying they don’t know how Mr. Tsipras will respond in coming days.

Messrs. Juncker, Tsipras and Dijsselbloem will talk again in the coming days, but no date has been set yet, official said Thursday.

The creditors’ proposal calls for primary surpluses—the excess of revenue over expenditure before interest payments are made—of 1% in 2015, 2% in 2016, 3% in 2017 and 3.5% in 2018, according to officials with knowledge of the proposal.

These rates are lower than the targets of 3% in 2015 and 4.5% from 2016 onward that had been foreseen in Greece’s existing bailout program, which has been extended until the end of June. Still, they are higher than what Athens was hoping to achieve and would force the government to make more spending cuts amid a shrinking economy.

One key target of additional cuts under the proposal is Greece’s pension system, which Mr. Tsipras and his allies had promised to shield from further measures. Under the plan, Greece would have to reduce pension spending as of July, delivering savings of 0.25% to 0.5% of gross domestic product this year and 1% of GDP next year.

The lenders’ proposal also calls for higher rates on value-added taxes than the ones put forward by Athens in negotiations. Greece’s VAT system, which currently has many different rates, would be simplified to just two—11% and 23%—which would bring in higher revenue. Greece has been pushing for a system of three rates, which European officials say falls short of the extra €1.8 billion, or about 1% of GDP, that creditors have been asking for.

—Viktoria Dendrinou in Brussels and Marcus Walker in Berlin contributed to this article.

Write to Gabriele Steinhauser at gabriele.steinhauser@wsj.com and Nektaria Stamouli at nektaria.stamouli@wsj.com