Greece, Eurozone Seek to Resolve Differences as Deadline Looms

Finance ministers to meet in Luxembourg in effort to reach agreement on Greek bailout

The Wall Street Journal

By VIKTORIA DENDRINOU

June 18, 2015 2:27 a.m. ET

LUXEMBOURG—Eurozone finance ministers have another chance to break the deadlock in talks over Greece’s international bailout Thursday, but neither side has shown any sign of shifting its position, even as warnings grow of the potential impact of a Greek default and exit from the euro.

Gathering in Luxembourg for their monthly get-together, the finance chiefs will address an impasse in negotiations between Greece and the institutions overseeing its bailout—representing the eurozone and the International Monetary Fund—over policy overhauls and budget cuts Athens must undertake in exchange for sustained financing. But eurozone officials doubt a deal can be reached given what they say is limited progress in negotiations.

The eurozone portion of Greece’s €245 billion ($275.6 billion) bailout expires on June 30. On the same day, Athens is due to pay back €1.5 billion in loans to the IMF—a payment it won’t be able to make without a new aid transfer. With time running out, large differences persist over a set of measures creditors say are key for Greece’s economy to recover, but that Athens says would push it further into recession.

Still, eurozone officials warn that the two sides remain far apart and stress that without some significant concessions from Athens there won’t be any more financial support from the creditors.

“You’ll see the institutions have moved very, very significantly,” a senior eurozone official said Wednesday, pointing to easier budget targets and delays on policy overhauls.

Under their proposal, the creditors want Athens to produce a budget surplus of 1% of gross domestic product this year and 2% next year, when stripping out interest payments. That is significantly below the 3% and 4.5%, respectively, set out in the rescue program sealed in 2012. The Greeks have agreed to meet those targets, but differences remain over what it will take to get there.

The finance ministers’ meeting comes after talks between Greece and its European creditors collapsed over the weekend, when European officials dismissed the Greek government’s latest proposals. After the talks, the European Commission, the European Union’s executive arm, said the gap between the two sides over what spending cuts and other concessions Greece would have to make was still as high as €2 billion of annual budget revenues.

But Greek Prime Minister Alexis Tsipras maintained his tough stance on Wednesday, saying his government was prepared to say “no” to a deal that contains “catastrophic policies.”

Calls to reach an agreement quickly have intensified amid concerns over the possible impact a default would have—not only in Greece but across Europe.

Greece’s central bank warned Wednesday that failure to clinch a deal with international creditors on desperately needed funding could lead the country into an “uncontrollable crisis.”

“A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability,” the central bank said.

Several countries have already said publicly that they are planning for the event of a Greek default or exit from the euro, in a sign that a scenario long considered taboo is now seen as a possibility.

The U.K. government has stepped up its contingency plans regarding the potential impact on a wide range of areas including businesses, banks and tourism, Prime Minister David Cameron’s spokeswoman said Wednesday, adding that such an outcome presented serious economic risks. The U.K. Treasury reiterated on Wednesday that it was important that Greece and the eurozone work together to swiftly resolve the crisis, after Treasury chief George Osborne warned on Tuesday that the damage to financial confidence from a Greek default or exit from the euro shouldn't be underestimated.

—Nicholas Winning in London contributed to this article.

Write to Viktoria Dendrinou at viktoria.dendrinou@wsj.com