Greece's Lenders Weigh Proposals Ahead of Crunch Meetings

By Marcus Walker in Athens and Gabriele Steinhauser in Brussels 

        Greece's lenders on Tuesday were scrutinizing a proposal seen as a potential breakthrough on a last-minute bailout deal, but significant concerns by more demanding creditors suggest that further days of tough negotiations lie ahead before an agreement can be clinched.
        After months of virtual deadlock, officials emerged from a string of meetings in Brussels on Monday optimistic over a Greek concession on pensions. European officials hope that eurozone finance ministers can sign off on a policy package agreed to between Greece and the institutions overseeing its bailout program--the IMF, European Commission and European Central Bank--on Wednesday.
        "I am convinced we will find an agreement, as an agreement is now possible this week," European Economic Commissioner Pierre Moscovici said in an interview with French radio France Inter on Tuesday.
        But the IMF is still unhappy with key aspects of Greece's new economic proposals and German officials were irritated by the speed with which the commission welcomed them, warning that much work needs to be done.
        A summit of European leaders on Thursday and Friday could be the final chance to find a solution if Wednesday's meeting fails.
        Time is running out. Greece needs to secure financing in some form before June 30, when it is due to repay a EUR1.55 billion ($1.73 billion) loan from the IMF. Europe's part of Greece's EUR245 billion bailout program also expires on that date.
        The European Central Bank on Tuesday increased the emergency liquidity provided to Greek banks, for the third time in three days. Nervous Greek depositors were withdrawing deposits from lenders at a rate of about EUR1 billion a day late last week, though the rate slowed Monday to between EUR500 to EUR700 million, according to bank officials.
        Failure to reach and ratify a deal by the end of the month is highly likely to prompt the ECB to curtail that assistance. Such a move would force Greece to impose capital controls, dealing a severe blow to its long-suffering economy.
        Markets have rallied on the glimmer of hope for a deal. In equity markets, the Stoxx Europe 600 was 1.5% higher, building on Monday's 2.3% gain. Greece's Athex Composite climbed 5%.
        Germany's DAX climbed 1.4% after logging its biggest one-day rise in nearly three years on Monday. France's CAC-40 was up 1.5%.
        Greece's plan calls for reducing the deficits in its pension system and government budget by relying heavily on raising taxes and social-security contributions, whereas the IMF wanted bigger spending cuts.
        Greece's government, led by the left-wing Syriza party, is finding it politically difficult to identify major spending cuts because those tend to affect key Syriza constituencies such as civil servants and pensioners. The Greek government is seeking to tap businesses and middle-class households with tax increases.
        The Washington-based IMF has said Greece's economy is already too heavily taxed and that too many additional tax increases would hurt economic growth, making it harder to pay down Greece's debt.
        "It is still short of everything that should be expected," IMF Managing Director Christine Lagarde said Monday, suggesting Greece will have to modify its proposals significantly to win the IMF's backing.
        Some differences also remain on the details of an overhaul of Greece's value-added taxes, where creditors have demanded increased revenue and the government is trying to limit the extent of tax increases that would hit its lower-income supporters.
        IMF representatives have told European officials that they are also not satisfied yet by Greece's broader economic overhaul plans beyond its budgetary promises. The IMF sees a wider, business-friendly shake-up of Greece's economy as essential if the country is to improve its long-term economic growth.
        Germany, the eurozone's dominant power, made it clear during Monday's summit that it wants the IMF to be satisfied with Greece's economic program.
        "Unauthorized personalities shouldn't be raising some kind of expectations," German Finance Minister Wolfgang Schauble told reporters on Monday in Brussels, alluding to a tweet by the commission's chief of staff, who had called the Greek proposals "a good basis for progress."
        German leaders have stressed that they won't agree to disburse any bailout funds to Greece unless the IMF has also approved Athens's policy package and is willing to continue lending itself.
        Inti Landauro in Paris contributed to this article.
        Write to Marcus Walker at marcus.walker@wsj.com
        (END) Dow Jones Newswires

        June 23, 2015 17:44 ET (21:44 GMT)

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