By Renee Maltezou and Jan Strupczewski
ATHENS/BRUSSELS (Reuters) - A secret International Monetary Fund study showed Greece needs far more debt relief than European governments have been willing to contemplate so far, as Germany heaped pressure on Athens on Tuesday to reform and win back its partners' trust.
The IMF's stark warning on Athens' debt was leaked as Greek Prime Minister Alexis Tsipras struggled to persuade deeply unhappy leftist lawmakers to vote for a package of austerity measures and liberal economic reforms to secure a new bailout.
The study, seen by Reuters, said European countries would have to give Greece a 30-year grace period on servicing all its European debt, including new loans, and a dramatic maturity extension. Or else they must make annual transfers to the Greek budget or accept "deep upfront haircuts" on existing loans.
The Debt Sustainability Analysis is likely to sharpen fierce debate in Germany about whether to lend Greece yet more money, while it will be seen by many in Greece as a vindication of the government's plea for sweeping debt relief. A Greek newspaper called the report a slap in the face for Berlin.
German Finance Minister Wolfgang Schaeuble made clear in Brussels on Tuesday that some members of the Berlin government think it would make more sense for Athens to leave the euro zone temporarily rather than take another bailout.
The Greek Finance Ministry said it had submitted the legislation required by a deal Tsipras reached with euro zone partners on Monday to parliament for a vote on Wednesday.
Assuming Athens fulfils its end of the bargain this week by enacting a swathe of painful measures, the German parliament is due to meet in a special session on Friday to debate whether to authorize the government to open new loan negotiations.
"The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date - and what has been proposed by the ESM," the IMF said, referring to the European Stability Mechanism bailout fund.
An EU source said euro zone finance ministers and leaders had been aware of the confidential IMF figures when they agreed on Monday on a roadmap to a third bailout.
IMF Managing-Director Christine Lagarde was present but the IMF did not make the updated assessment public, in contrast to a previous study which was released in Washington on July 2.
PURGE AFTER VOTE?
Lawmakers from Greece's ruling Syriza party and their allies argued behind closed doors about whether to back sweeping reforms the government must ram through parliament as it races to meet the terms of the unpopular bailout deal.
Having staved off financial meltdown, Tsipras has until Wednesday night to pass measures tougher than those rejected in a referendum days ago. With mutiny among hardliners in his own ranks, Tsipras will likely need the support of pro-European opposition parties to carry the vote.
A Greek government official ruled out the possibility that Tsipras might resign, adding that the prime minister would probably purge the cabinet after the parliament vote.
Syriza and its right-wing nationalist junior coalition ally held separate meetings to prepare for parliament sittings to pass the laws, which include plans for tax hikes, pension reforms and tighter supervision of the government's finances.
It was a spectacular turnaround for a Syriza party voted into power in January promising to end years of cuts and recession in a country where one in four people is unemployed.
In Germany, the biggest contributor to euro zone bailouts, doubts linger about whether Tsipras will stick to his word.
"There are many people, including in the federal government, who are quite convinced that in the interests of Greece and the Greek people that what we wrote down would have been much the better solution," Schaeuble said when asked about a German proposal on a "time-out" for Greece from the euro zone.
GORDIAN KNOT
Comparing the challenge facing the government to the Gordian Knot of mythology that was impossible to untie, Interior Minister Nikos Voutsis was nevertheless confident that Tsipras could muster enough votes in parliament.
The Syriza party's junior coalition partner promised support, with the ambiguous caveat that it would only vote for bailout measures agreed before last weekend's summit in Brussels, which were less stringent. Opponents of the new measures plan strikes and protests in the coming days.
"I've taken the decision, this is a tough third bailout and I will not vote for it," Despoina Charalambidou, a deputy parliament speaker and Syriza lawmaker, told Vima FM radio.
"Why should I resign? I was elected on the basis of a certain manifesto, the Syriza programme, which support these positions. I'm not giving up my seat."
Another obstacle could be parliamentary speaker Zoe Constantopoulou, who is key to the logistics of the vote and has been one of the creditors' most ferocious critics. Tsipras could try to force her out through a no-confidence vote but that would eat up precious time and political capital for the reform bills.
"The government finds itself in quicksand after the deal with creditors," the centre-right Kathimerini newspaper said.
"Mr. Tsipras needs to solve a difficult equation as dissenters on Wednesday's vote may reach or exceed 40," it said. Tsipras needs 151 of 300 lawmakers to pass the reforms and with the votes of his own party and allies theoretically has 162.
Bank of England Governor Mark Carney also drew on Greek mythology to underscore the scale of the challenge, saying it needs a "Herculean" effort from all sides for the deal to work.
Austria's Chancellor Werner Faymann said a "Grexit" could not be ruled out despite the agreement, echoing findings by a Reuters poll of 60 economists, some of whom saw at least a 50 percent chance of Greece leaving the currency.
The poll, which was carried out in the 24 hours after news of the agreement broke, also pointed to scepticism about whether the deal was good for both Greece and Europe, and whether Greece had enough assets to sell to meet the terms of the deal.
Euro zone finance officials must find a way to give Greece bridge financing to keep the country afloat while the third bailout package is negotiated, especially to pay back loans owed to the European Central Bank next week.
There has been a mounting anger at both the government and creditors as many Greeks decry what they see as the humiliation of their country being treated like a European colony.
"With this deal, the public mandate and the proud 'No' of the Greek people in the referendum is cancelled," said Energy minister Panagiotis Lafazanis, another of the leftist hardliners whom Tsipras must sidestep to implement the reforms.
"The dilemma posed by the creditors, truce or destruction, is fake and terroristic and has been demolished in the public conscience," he said.
The pain for Greece continues, with bank closures and strict controls on withdrawals from cash machines squeezing businesses dry. A Greek trade federation called on the government to loosen such capital controls to allow companies to make payments owed to overseas vendors, while pharmacists warned they faced difficulties securing supplies.
(Reporting by Renee Maltezou, Angeliki Koutantou, George Georgiopoulos, Lefteris Karagiannopoulos, Dina Kyriakidou, Costas Pitas in ATHENS; Alastair Macdonald, Francesco Guarascio and Robert-Jan Bartunek in BRUSSELS; William James in LONDON; Angelika Gruber in VIENNA; Sumanta Dey; writing by Matthias Williams; Editing by Sonya Hepinstall, Anna Willard and Paul Taylor)
