Greece given 48 hours to reach deal as EU leaders weigh debt

[BRUSSELS] European leaders gave Greek Prime Minister Alexis Tsipras's government 48 hours to make the final push needed to satisfy creditors and end a five-month standoff over aid that risks splitting the euro.

Leaders from Greece's 18 fellow euro-zone countries agreed that Mr Tsipras's government was finally getting serious about striking a deal after it submitted a set of reform measures that began to converge with the terms demanded by creditors. They agreed to step up the pace of negotiations to secure a breakthrough on Wednesday that leaders can sign off at the end of the week.

The package of proposals represents "a certain step forward, but it was also said very clearly that we're not yet where we need to be," German Chancellor Angela Merkel told reporters in Brussels after an emergency summit Monday night. "Hours of the most intensive deliberations lie ahead of us."

Greek stocks and bonds surged earlier on Monday after Mr Tsipras's government submitted new proposals addressing the areas of pensions and fiscal targets that had proven the chief barriers to a deal. Disagreement remains over the fine print, with revenue from sales-tax rates the chief sticking point, according to an EU diplomat who asked not to be named because the talks are private.

A meeting of euro-area finance ministers was convened for Wednesday to prepare the ground for a second, scheduled summit of European Union leaders that begins the following day.

Negotiations with creditors will continue over the coming 48 hours to achieve a "total and viable solution," Mr Tsipras told reporters in the early hours of Tuesday. The government aims for the country "to be able to stand again on its feet very soon," he said.

With the clock ticking toward a June 30 deadline both for the expiry of the European portion of Greece's bailout and payments to the International Monetary Fund, leaders stressed the work still to do in the time available. While they didn't discuss the IMF payment, they did raise Greece's future financial viability given its debt load, the highest in Europe.

French President Francois Hollande cited "the lengthening of maturities, or re-profiling of the debt," saying that "it needs to be indicated as a forthcoming step," albeit not in the coming days.

Ms Merkel said that rendering Greece's debt sustainable wasn't discussed in detail, but "it became clear that this question of financial viability has to be part of the agreement."

Greek stocks and bonds extended their rally on Monday, with the Athens Stock Exchange Index closing 9 per cent higher for its biggest closing gain since Feb 24. The yield on the two-year government bond fell 511 basis points to 23.8 per cent, and the 10-year yield fell 150 basis points to 11.2 per cent.

The rally was fed by hopes of an imminent deal after the Greek government said its proposals included steps to eliminate early retirement options, hike the sales tax, increase tax surcharges that middle- and high-income earners pay and to introduce a levy on companies with annual net income of more than 500,000 euros ($568,000).

Finance chiefs meeting earlier on Monday asked the three creditor institutions - the European Central Bank, the IMF and the European Commission - to examine the proposals in detail with the Greek authorities to speed an agreement.

Parliament Support Even if he reaches a tentative accord this week, Tsipras will still need the support of parliament in Athens, which is dominated by lawmakers from his Syriza coalition opposed to austerity measures such as pension cuts. For its part, Germany insists on Greek lawmakers taking the first step by passing economic policy changes before the German lower house will agree to a revised aid deal.

"I am convinced that this is not only our intention to finalise the decision-making process this week - we will finalise the process this week," EU Commission President Jean- Claude Juncker told the closing press briefing.

The package is "certainly more comprehensive and includes much more details than what we have seen, but it still lacks specificity," IMF chief Christine Lagarde told reporters. An "enormous" amount of work lies ahead, she said.

BLOOMBERG