Greece's creditors offer US$17.3b package to hasten deal

[ATHENS] Greece's creditors offered to unlock aid of as much as 15.5 billion euros for the indebted country, as Prime Minister Alexis Tsipras lamented the tough conditions demanded in return for the deal.

With Greece's bailout set to expire on Tuesday, creditors have proposed a five-month extension through November, a European official said on Friday.

The proposal, which was presented to a euro-area finance ministers meeting in Brussels on Thursday, is dependent upon the Greek government committing to so-called prior actions to implement economic measures, the official told reporters in Brussels, asking not to named because negotiations are ongoing.

Finance chiefs will meet again on Saturday at 2 pm in Brussels to try and hammer out agreement on those steps, with sticking points including sales-tax rates and pensions.

At a meeting on Friday, Mr Tsipras told German Chancellor Angela Merkel and French President Francois Hollande that his government couldn't understand why the country's creditors insisted on harsh austerity measures, a Greek government official said in an e-mailed statement.

"Whatever the package, it remains a very difficult one for prime minister to sell it, and that is the issue," Malta's Finance Minister Edward Scicluna told Bloomberg TV's Francine Lacqua and Manus Cranny in telephone interview on Friday.

The standoff has prompted warnings from Credit Suisse to UniCredit AG that capital controls are possible as soon as Monday if a deal remains elusive after this weekend's talks. Ms Merkel told reporters on Friday that European leaders "agreed that everything must be done to find a solution on Saturday."

Hopes of a deal were first raised - and then dashed - when Tsipras came to Brussels earlier this week with a set of proposals that were welcomed as the first credible plan from his government, only to push back when more cuts were demanded.

The shifting sentiment around the prospects of a deal is mirrored in the country's volatile markets. The Athens Stock Exchange Index, which opened more than one per cent lower on Friday, erased losses as details of the proposed package emerged. The index was unchanged and is still up about 14 per cent this week, having rallied on expectations of a deal earlier. Prices in the government bond market, where liquidity is thin and trading scarce, were also little changed. The yield on the two-year bond stood at 21.5 per cent, down from more than 30 per cent a week ago as some investors remain hopeful an accord will be reached.

The proposed package foresees payouts to Greece of 8.7 billion euros from the European Financial Stability Facility, 3.5 billion euros from the International Monetary Fund and 3.3 billion euros in central-bank profits on bond purchases, the official told reporters. Of the 3.3 billion euros in so-called SMP profits, 1.8 billion euros would be paid immediately, the official said. Angela Gaviria, an IMF spokeswoman, declined comment on the creditor proposal.

The Greek impasse is hanging over a European Union summit which was slated to discuss Europe's immigration crisis and the UK's drive to hold a referendum on EU membership. Rather than clinch a deal on Greece during the two-day gathering that started Thursday, euro-area leaders refused to discuss it in detail and only exposed the confusion and frustration at play.

"Deadlines in Europe are rarely cast in stone," Holger Schmieding, chief economist at Berenberg, said in a note to clients. "But with five Eurogroup meetings in little more than a week and almost constant talks between the leaders of the creditor institutions and Athens, the patience of creditors is running out."

With no follow-on financing in place, Greece may struggle to pay 1.5 billion euros it owes the IMF at the end of the month. Failure to close a deal by the weekend raises the odds that Greece might have to impose capital controls to prevent a run on its banks. Greeks have withdrawn about 20 per cent of deposits held by the nation's lenders this year as concern of an exit from the euro intensified.

Credit Suisse analysts wrote in a note to clients that capital controls couldn't be excluded on Monday if a deal isn't struck over the weekend. On Friday, The European Central Bank left the level of emergency cash available to Greek banks unchanged for a third day, people familiar with the decision said. The ECB is assessing almost daily banks' capital levels.

"Ideally, the aim was to strike a deal in time to allow the Greek government to pass legislation before markets open on Monday, and then have some national parliaments approve the deal in the very next days, so as to allow the disbursement of the loan tranche just before IMF payments come due," Martina von Terzi, an economist at UniCredit Bank AG, wrote in a note to clients.

"But the risk is growing that this timeline will prove too optimistic."

BLOOMBERG