Gaps remain in Greek talks with creditors

Athens - Prime Minister Alexis Tsipras flew to Brussels to meet Greece's international creditors on Wednesday to try to bridge gaps on key elements of the proposals made by his left-wing government to shore up state finances in return for vital loans.

Athens had proposed increasing VAT, corporate tax and pension contributions in order to meet budget targets, but Tsipras told aides that creditors had not accepted the revenue-raising measures, a Greek government official said.

"This strange attitude can only mean one of two things: either they do not want an agreement or they are serving specific interests in Greece," Tsipras said in a tweet.

Markets reacted nervously to the comments from Athens, but a European Union official close to the talks, who declined to be named, made clear talks were continuing:

"Nothing has broken down, negotiations are going on and the meeting with Tsipras will go ahead as planned."

Still, with time running out before the June 30 deadline when Greece has to repay €1.6bn to the International Monetary Fund (IMF) or go into default, another EU official close to the talks said major differences remained.

"Positions before the meeting with Tsipras are still apart on many points," the source said, listing pensions, VAT and corporate taxation. "There was not much progress yesterday."

The issue of debt relief, a key demand on the Greek side, had not even been discussed, the official said.

European stock markets gave back some of the gains made this week as doubts returned over Greece. Athens' benchmark ATG equity index, which had risen 15% in the last two days, fell 3.6% and the Greek bank index dropped 7.2%.

Tsipras in Brussels

Tsipras was to meet the heads of the European Commission, the IMF, the European Central Bank, euro zone finance ministers and the bloc's rescue fund in Brussels around 13:00 to hear their official response to Greece's proposals, EU and Greek officials said.

Eurozone finance ministers were due to convene at 19:00 to finalise an agreement for the currency area's leaders to approve on Thursday.

Tsipras, who came to power in January on a promise to end austerity, has offered a package of measures based heavily on hikes to VAT and corporate taxes and increases to pension contributions.

European leaders gave a cautious welcome to the proposals as a negotiating basis on Monday, but they have also been criticised as too dependent on growth-sapping tax hikes rather than spending cuts.

Many on the creditor side also doubt whether the Athens government can actually raise the promised tax revenues, because the tax collection system is so weak.

Tsipras must also deal with a backlash from his own leftist Syriza party that could make it harder to get an accord approved in parliament.

Economy Minister Giorgos Stathakis said lawmakers would have to approve the package before Greece's international bailout expires on June 30. Some eurozone parliaments, including leading creditor Germany's, will also have to endorse it before the deadline.

A series of street protests in Athens in recent days, some organised with Syriza's support, have underlined public opposition to yet more belt-tightening.

"There are four people in my household, and we are living on 600 euros a month. Where else does that happen?" said 59-year-old Antonia Methoniou, a cancer patient who took early retirement for health reasons.

Debt relief

Greece has been pushing creditors hard to write off part of its huge public debt, arguing that without it, the economy cannot recover from a crisis that has cut overall output by a quarter and pushed the unemployment rate to 25%.

But after months of fruitless and often acrimonious wrangling, there has been no sign from European governments of any willingness to accept a debt write-down, which they would have to explain to their own electorates.

German Chancellor Angela Merkel explicitly ruled out any debt "haircut" this week and EU officials say the most eurozone leaders are likely to accept is a renewal of a vague commitment made in 2012 to consider further measures to improve Greek debt sustainability once the bailout programme is fully implemented.

But a lack of concessions on debt relief will also add to the difficulty of getting parliamentary approval, notably from the nationalist Independent Greeks, whose support Tsipras needs for a majority.

They also reject moves to scrap VAT exemptions enjoyed by some Greek islands, which they see as vital to the islands' survival.

"I could not vote for such a measure, nor, obviously, could I participate in a government violating a line on which we received a mandate from the Greek people," party leader Panos Kammenos said in a tweet on Tuesday.

However it remains unclear whether either they or potential rebels in Syriza would actually vote against the government, at the risk of triggering new elections and a financial crisis that could push Greece out of the euro zone.

Stathakis said he was confident parliament would approve a deal before Tuesday, saying: "I think this balanced deal is defensible to Syriza, and in Greek society too."