Greek debt talks with creditors

Greece and its international creditors are making progress towards finalising a third bailout accord designed to keep Athens in the eurozone in return for yet more tough economic reforms.

Officials believe an agreement on terms for the deal can be reached soon, possibly on Tuesday, and end a long-running crisis which has raised serious concerns about the future of the single currency.

- What is being discussed in Athens?

At a crunch July 12-13 summit, eurozone leaders offered Greece up to 86 billion euros ($94 billion) over three years to allow Athens time to get its struggling economy back on track and stabilise public finances overwhelmed by a debt mountain of around 320 billion euros.

In return, Athens must accept more austerity measures -- painful tax hikes plus spending cuts coupled with reforms to modernise the economy.

Early Tuesday, Greece and its creditors reached an agreement on fiscal targets, suggesting talks are on track for the bailout deal. The initial agreement commits the country to a primary deficit of 0.25 percent of GDP in 2015, and a surplus in the three years after that.

- Why another bailout?
Two previous rescue packages in 2010 and 2012 cost a combined 240 billion euros, plus more than 100 billion euros in an unprecedented private-sector writedown.

The creditors -- the European Union, the European Central Bank and the International Monetary Fund -- say a third package is needed to keep Greece afloat after successive governments failed to live up to their commitments.

Greece says it has done its best but with an economy in deep recession for six years, the austerity measures only made matters worse.

Leftist Prime Minister Alexis Tsipras won office in January promising an end to austerity but backtracked when it seemed Greece could crash out of the eurozone with disastrous consequences.

- Why not cut the debt?
Greece's debt equals about 170 percent of annual economic output and many, including the IMF, believe the country can never hope to return to growth unless it is reduced significantly.

Germany however strongly opposes that option and insists debt relief can only be considered after Greece has met all its latest reform commitments.

Adding another 86 billion euros to the pile -- the rescues come in the form of loans to be repaid, not as aid -- puts the debt rate at around 200 percent of GDP, more than three times the EU's ceiling of 60 percent.

- What do the creditors want?

Creditors want concrete reforms and an unequivocal Greek government commitment to implement them as rescue funds are handed over.

Greece will have to cut the costs of its pension system, followed by far-reaching reforms to open up the economy and increase competition.

Athens will also have to ease labour market regulation to make it easier for companies to hire and fire.

The aim is to cut spending and increase revenue so that the government generates a surplus -- before interest payments -- so as to help pay down the debt.

Greece last year did run what is known as a primary surplus -- a state's budget surplus prior to debt financing -- but with the economy going sharply into reverse since Tsipras came to power, its finances are once again deeply in the red.

- What next after an accord?
The next step would be for the Greek parliament to approve the reforms package, likely on Thursday.

The eurozone's 19 finance ministers, headed by Jeroen Dijsselbloem of the Netherlands, would then review the accord, possibly on Friday. It must then be approved by the parliament of several member states, including the most crucial one, Germany.

That scenario would provide plenty of time before Greece must repay some 3.4 billion euros to the ECB on August 20.

If there is no agreement, Brussels is expected to organise another bridging loan similar to that arranged for July 20 when Greece had to repay debt to the IMF.

- What about the future of the eurozone?

The Greek debt crisis has severely tested faith in the euro project, but analysts believe the bloc is much stronger now than at the height of the storm in 2010-12 after measures taken to more closely coordinate economic policy in support of the single currency.

However, Germany, Europe's paymaster and biggest economy, has grown increasingly frustrated with Greece, saying that others such as bailed-out Ireland and Portugal made the sacrifices Athens has balked at.

At the July summit, Berlin even got the possibility of Greece leaving the euro put on the agenda.

Seeing "Grexit" laid down in black and white came as a shock and the issue still looms in the background, with many in German Chancellor Angela Merkel's own camp backing this option as the best way forward.

They argue that once out of the euro straitjacket, Greece would be free to adjust with a new drachma while the other 18 eurozone members would be able to strengthen the currency bloc through tighter economic and political integration.

Those opposed fear "Grexit" will destroy the eurozone's credibility, allowing the financial markets to attack the next weakest member and unravel the currency union.