Greece told not to expect flexibility as creditors draft debt deal

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The Greek bailout crisis was headed for its grand finale as both the Greek government and its international creditors drafted proposals designed to keep the cash-strapped country officially solvent and within the euro zone.

Details of the competing proposals were not known by Tuesday evening, European time, though some European leaders were hopeful that the two sides, at war with one another since the election in January of the Greece's anti-austerity Syriza party, could hammer out a compromise agreement before Greece got swamped by a new wave of debt-payment deadlines.

But Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro zone finance ministers, said Greece should not expect a lot of flexibility from the European Union, the European Central Bank and the International Monetary Fund – the three institutions that have sponsored Greece's bailouts.

"As long as it doesn't meet economic conditions, we can't come to an agreement," he told Germany's RTL Television. "It's not right to think that we can meet half way."

Greek political observers agreed that the creditors would only go so far to meet Greece's anti-austerity demands.

"Creditors to Greece do not make concessions, at least big ones," said George Tzogopoulos, author and political analyst at think tank Centre international de formation européenne. "Sooner or later Greece will return to normalcy, but I am not sure it will happen this week because even if a compromise is reached, it is the implementation phase which will matter."

Greece has a sorry record of meeting its austerity commitments from the two bailouts struck since 2010, when the country's borrowing costs rose to crisis levels, shutting it out of the public debt markets. There are fears that Greece will agree to compromise, receive fresh bailout loans then simply refuse to implement new reform measures.

On Tuesday, a day after European leaders held an emergency meeting in Berlin to draft a final rescue proposal, the government of Greek Prime Minister Alexis Tsipras said it had submitted its own proposal.

"After submitting a complete proposal for a deal last night to institutions, we are not waiting for them to submit their own plan back to us," Mr. Tsipras told reporters. "Greece is the one that submits the plan … Greece has put forward proposals, we have made concessions which is natural in a negotiation but, our plan for exiting the crisis is realistic."

The goal is to have a broad agreement by Friday, when Greece must make a €300-million ($415-million) payment to the IMF.

Many proposals have been launched and rejected by both sides since Syriza party swept into power. The latest proposals could also go nowhere, though a series of imminent debt-payment deadlines has put the Greek government under enormous pressure to agree to new bailout program within the next week or two.

European Economic Affairs Commissioner Pierre Moscovici said on French radio Tuesday that "the discussions were fruitful, they are bearing fruit, there is real understanding by both the Greek government and its creditors."

The rumours suggested that Greece might be offered some debt relief in exchange for pension cuts and a higher retirement age. Again, no details were released, but Mr. Moscovici said that "We are starting to work in depth on pensions. The Greek government has made some first proposals and the pros and cons are being considered."

Other than pension reform and retirement ages, one of the key sticking points is the size of Greece's primary surplus – the budget surplus remaining after debt payments are stripped out. Greece's creditors have insisted on a hefty primary surplus target of 4.5 per cent. Syriza wants a figure of about 1 per cent, which would allow it to devote more money social services. A figure somewhere in the middle is likely.

The emergency meeting in Berlin brought together German Chancellor Angela Merkel, French President François Hollande, ECB President Mario Draghi, European Commission President Jean-Claude Juncker and Christine Lagarde, managing director of the IMF.

If Greece and its trio of creditors reach a compromise this month, Greece will be handed €7.2-billion in loans left over from its previous bailout.