Debt relief key as Greek bailout talks near deadline

By Karolina Tagaris and Michele Kambas

ATHENS (Reuters) - A deal between Greece and its international creditors is being held up by a standoff over the central issue of debt relief, Economy Minister George Stathakis said on Wednesday, ahead of meetings in Brussels aimed at clinching an accord.

With time running out before the June 30 deadline when Greece has to repay 1.6 billion euros ($1.79 billion) to the International Monetary Fund or face going into default, Stathakis said he was confident a deal would be reached by the time European Union leaders meet on Thursday.

Greek Prime Minister Alexis 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 1100 GMT to hear their official response to Greece's proposals, EU and Greek officials said.

Euro zone finance ministers are due to convene at 1700 GMT to finalise an agreement for the currency area's leaders to approve on Thursday, but Stathakis said the two sides still had to bridge differences in some areas.

"There are two or three very specific issues, and as you appreciate it's the last part, three out of the 50 measures that have been agreed," he told Greece's Mega TV.

Those issues included Greek demands for long-term debt relief and VAT exemptions in the Greek islands, a sensitive issue for the right-wing Independent Greeks party that supports Tsipras' coalition government.

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

European leaders gave a cautious welcome to the proposals as a negotiating basis on Monday but Tsipras risks a backlash from his own leftist Syriza party that could complicate the battle to get an accord approved in parliament.

Stathakis said lawmakers would have to approve the package before the country's bailout expires on June 30. Some euro zone 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 the support of his own leftist Syriza party, have also 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 heath reasons.

DEBT IN FOCUS

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 which has cut overall output by a quarter and pushed the unemployment rate to 25 percent.

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 euro zone 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.

If there are no concessions from the lenders on debt relief, Tsipras may face problems getting parliament to approve the package, with a handful of Syriza deputies saying they could not support further doses of austerity.

The Independent Greeks, whose support he relies on for a majority in parliament, have also insisted on debt relief as a pre-condition for their backing and they also want the VAT exemptions enjoyed by some Greek islands to continue.

However it remains unclear whether either they or potential rebels in Syriza would vote against a deal and bring the government down, 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 in time for the IMF deadline on Tuesday.

"I think this balanced deal is defensible to Syriza, and in Greek society too," Stathakis said.

($1 = 0.8929 euros)

(Reporting by Karolina Tagaris and Michele Kambas; editing by James Mackenzie and Paul Taylor)