Greece needs debt deal on Saturday, EU leaders warn

German Chancellor Angela Merkel at a press conference during the European Council on June 25, 2015, in Brussels.
German Chancellor Angela Merkel at a press conference during the European Council on June 25, 2015, in Brussels. PHOTO: AFP

BRUSSELS (AFP) - The leaders of Germany and France warned Greece that it must reach a debt deal with its creditors at "decisive" talks on Saturday to avert default and a possible euro exit.

Angela Merkel and Francois Hollande sang from the same hymn sheet after yet another meeting of eurozone finance ministers broke down Thursday without an agreement to free vital bailout funds.

Athens needs the money to cover a huge 1.5 billion euro (S$2.25 billion) IMF debt bill that falls due on June 30, failing which its position in the single currency and even the European Union could be at risk.

"We have to keep working because time is pressing and the Eurogroup (eurozone finance ministers) on Saturday will have a decisive importance," Chancellor Merkel said early Friday after an EU summit in Brussels.

"All the leaders supported the idea that everything must be done to find a solution on Saturday."

The French president said he would help work for a "durable" deal for Greece, whose leftist government has haggled over reform demands from its EU-IMF creditors since its election in January.

"I consider that the meeting on Saturday is crucial because time is up on June 30, when the Greeks must meet their payment obligations, there are national parliaments that have to meet," he said.

The talks between the finance ministers of the 19-country currency union had been meant to produce a deal that EU leaders could rubber stamp at their summit.

But they broke down acrimoniously, with Greece and its creditors even producing rival plans for the ministers amid differences on pensions, value added tax and spending cuts.

The EU leaders held two hours of unscheduled talks on Greece at their summit on Thursday.

EU President Donald Tusk ruled out the possibility of a special summit of eurozone leaders like the one he called on Monday in a futile bid to resolve the crisis.

"Another Eurosummit is not foreseen. Leaders expect the Eurogroup to conclude this process at their meeting on Saturday," he tweeted.

In a sign of the passions involved, dozens of anti-austerity protesters waving Greek flags gathered at the police barricades around the summit and chanted slogans against the "Troika", as the three creditor institutions used to be known, an AFP reporter said.

Greece needs creditors to unlock the remaining 7.2 billion euros in its bailout to pay the IMF at the end of the month but the lenders have refused until Athens agrees to new reforms.

Marathon meetings between Greek Prime Minister Alexis Tsipras, whose anti-austerity Syriza party won elections in January, and the heads of the European Commission, European Central Bank and International Monetary Fund, Greece's main creditors, ended with no deal on Thursday morning.

Mr Tsipras earlier insisted that a deal was still possible.

"After the comprehensive Greek proposals, I'm confident we'll reach a compromise that will help the eurozone and Greece to overcome the crisis," Tsipras said as he arrived at the summit.

The IMF meanwhile said that it believes Greece will make the payment.

Talk of a default is "all speculation, because we're expecting the payment to be made on June 30 and that's what the Greek authorities have said publicly," said IMF spokesman Gerry Rice.

Mr Rice added that if the payment is missed, Greece will immediately be declared in arrears, cutting its access to IMF aid.

New plans submitted Sunday by Greece would produce eight billion euros in additional funds, mostly through new taxes on the wealthy and businesses, VAT increases and a cut in defence spending.

But in counter-proposals handed to Greece on Wednesday, creditors called for further savings on pensions, higher VAT for restaurants, and for defence expenditure to be slashed by 400 million euros instead of the proposed 200 million euros.

Athens has warned any accord would need to be approved by parliament, probably on Sunday, which risks splitting Tsipras's Syriza party, where many view him as reneging on election promises.

Any Greek agreement must also look to the future, with EU officials suggesting an extension of the bailout until the end of the year, followed by a possible third aid package to keep Greece afloat.