Euro zone ministers demand more from Greece for loan talks

Sceptical euro zone finance ministers demanded on Saturday that Greece go beyond painful austerity measures accepted by Prime Minister Alexis Tsipras if he wants them to open negotiations on a third bailout for his bankrupt country to keep it in the euro.

Ministers lined up to vent their anger at Tsipras on arrival at their umpteenth emergency weekend meeting on Greece's acute debt crisis, with Athens staring into an economic abyss when financial markets reopen on Monday unless it wins fresh aid.

EU officials forecast a deal would be reached by the end of the weekend to keep Greece afloat, but two sources said there was consensus among the other 18 ministers that the leftist government in Athens must take further steps to convince them it would honour any new debts.

Tsipras won parliamentary backing early on Saturday for a tough reform package that largely mirrored measures previously demanded by its international creditors but rejected by Greek voters at his behest in a referendum last Sunday.

Wolfgang Schaeuble, finance minister of its biggest creditor Germany and a stickler for the EU's fiscal rules, said negotiations would be "exceptionally difficult".

Emerging optimism about Greece had been "destroyed in an incredible way in the last few months" since Tsipras won power, Schaeuble said.

A German newspaper reported that his ministry was suggesting that Greece either improve its proposals quickly and transfer state assets worth 50 billion euros into a fund to pay down debt, or take a five-year "time-out" from the euro zone.

The German Finance Ministry declined to comment on the report in the Frankfurter Allgemeine Sonntagszeitung. But several officials said no one raised the possibility of a Greek euro exit in the meeting, which took a pause after three hours.

Other ministers arriving for the Eurogroup session spoke of a fundamental lack of trust after years of broken Greek promises and six months of erratic and provocative behaviour by the radical leftist Tsipras government.

"We are still far away," said Jeroen Dijsselbloem, the Dutch finance minister who was chairing the meeting. "On both content and the more complicated question of trust, even if it's all good on paper the question is whether it will get off the ground and will it happen ... We are facing a difficult negotiation."

However a preparatory meeting earlier on Saturday endorsed with reservations a recommendation by EU institutions and the IMF that Tsipras's proposals did provide a basis to launch negotiations, sources familiar with the session said.

Finland's state broadcaster YLE reported that the Finnish government had told parliament's influential Grand Committee on Saturday it did not consider the Greek proposal sufficient to start negotiations on a new loan. The government declined comment. Helsinki's stance has hardened since the populist Finns Party joined a right-wing coalition that took office in May.

LEFTIST DEFECTIONS

In Athens overnight, Tsipras had to rely on opposition votes from the right in parliament after some of his leftist lawmakers resisted spending cuts, tax rises and other measures he proposed in order to unlock 54 billion euros in three-year credit.

One Tsipras ally, Economy Minister George Stathakis, said some dissident ministers would be replaced and rebel lawmakers should resign their seats if they disagreed with the policy.

Germany, the biggest lender in two previous bailouts totalling 240 billion euros ($265 billion) since 2010, is deeply sceptical and public opinion is hostile to any further aid for Greece, putting pressure on Chancellor Angela Merkel.

"The high figures for financing needs over the next three years may be too high and too sudden," one euro zone source said. He said officials believed Greece may need 82 billion euros, factoring in cash from the IMF and other EU sources.

Sources in the creditor institutions said Greece would need 25 billion euros just to recapitalise its shattered banks, which have been closed since capital controls were imposed on June 29 after the breakdown of previous bailout negotiations.

Stathakis told Greece's Mega TV that the capital controls, restricting cash withdrawals and bank transfers, would remain for at least another two months.

The sources said the IMF had suggested one way to make Greek debts sustainable in the medium term could be to extend the maturity on past and new loans to 60 years instead of 30.

Slovak Finance Minister Peter Kazimir, one of the most hawkish critics of Greece, said making the debt sustainable was going to be "a huge problem".

A positive assessment of the Greek proposals delivered by the European Commission, European Central Bank and International Monetary Fund late on Friday, along with bullish comments from Athens' key euro zone ally France, had raised expectations that the Eurogroup would give a green light to new loan negotiations.

But even French Finance Minister Michel Sapin, Greece's most powerful ally in the euro zone, said: "Confidence has been ruined by every Greek government over many years which have sometimes made promises without making good on them at all.

"Now we need to have confidence again, to have certainty that decisions announced are decisions which are actually taken by the Greek government."

Merkel has made clear she does not want to see a "Grexit" that could disrupt a fragile European economic recovery and undermine a supposedly irreversible union. However, she faces stiff opposition among her own conservatives.

Euro zone leaders, including Merkel and French President Francois Hollande, are due to meet on Sunday, either to endorse a decision to open talks on a new bailout or if, along with other EU leaders, to take steps to contain the fallout from a looming Greek bankruptcy.

PARLIAMENT DIVIDED

With Greece's banks completely dependent on a credit lifeline from the European Central Bank, the measures proposed by Athens were seen as a last chance to avert financial collapse.

But in an ominous sign for the stability of the Greek government, 10 members on the ruling benches abstained or voted against the measures and another seven were absent, leaving Tsipras short of the 151 seats needed for a majority of his own.

Prominent left-wingers in his Syriza party signalled before the vote that they could not support the mix of tax hikes and spending cuts proposed by Tsipras, following the rejection of similar austerity measures by voters in Sunday's referendum.

Energy Minister Panagiotis Lafazanis, Deputy Labour Minister Dimitris Stratoulis as well as the speaker of parliament, Zoe Constantopoulou, all called "Present", in effect abstaining from the vote and withholding their support from the government.

"The government is being totally blackmailed," Constantopoulou said.

Following the vote, Tsipras said he would now focus on securing a deal.

"The priority now is to have a positive outcome to the negotiations. Everything else in its own time," he said.

Greece asked for 53.5 billion euros ($59 billion) to help cover its debts until 2018, a review of primary budget surplus targets in the light of the sharp deterioration of its economy, and a "reprofiling" of the country's long-term debt.

In addition to cash from the euro zone, if Greece makes payments it missed last month to the IMF, the global lender still has a facility to lend Greece some 16 billion euros.

Any deal would also have to be endorsed by national parliaments including in Germany, which must also formally approve the loan negotiations being started.

The Greek offer includes defence spending cuts, a timetable for privatising state assets such as Piraeus port and regional airports, hikes in value added tax for hotels and restaurants and slashing a top-up payment for poorer pensioners.

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