Greece’s government will likely scrape through a debt payment next week but has only a short window to overcome wide differences with creditors before the spectre of default returns.
The government is talking up chances of an aid-for-reform agreement before a roughly €300mn payment falls due on June 5 to the International Monetary Fund, which along with the eurozone funds Greece.
“Based on the ground we have covered in the negotiations we believe we are close to a deal,” government spokesman Gabriel Sakellaridis said, adding a deal was likely by Sunday.
Sources close to the talks say an agreement is unlikely so soon, but despite dire warnings from Greek officials, June 5 is no longer seen as doomsday since Athens has enough cash and options to avoid a default on that date.
Even if Greece did miss an IMF payment, the consequences need not be immediately catastrophic, experts say.
The government has made clear it considers not paying the IMF a lesser evil than not paying civil servants and pensioners, so a key question it faces over the next week is whether it can scrape together money to pay both in June.
Greece has already commandeered cash from state entities and raided its IMF reserves, and people close to the government say as of now it does not have enough money to pay both, given the total IMF June bill of €1.5bn in four tranches.
If a new round of talks that began in Brussels on Wednesday advances well and Athens is confident of a deal to unlock aid before wage and pension payments fall due at the end of June, it will probably make the €300mn payment, these people said.
Another option would be to seek approval to lump together all the IMF payments at the end of the month - something eurozone officials have suggested is a possibility, though Athens has so far ruled it out.
A third option to buy more negotiating time would be to make the June 5 payment but skip either the €340mn due on June 12 or two subsequent payments on June 16 and 19 if a deal still appeared distant.
Sources close to the talks say an agreement will only come if Prime Minister Alexis Tsipras offers substantial concessions on sticking points such as labour and pension reform, on which he has refused to budge so far.
“They need to compromise, do at least half of what they are supposed to do,” said one source close to the lenders.
The talks have stumbled on Greece’s insistence on reversing planned pension cuts, restoring collective bargaining rights and minimum wage levels. The two sides are also haggling over value-added-tax reforms, fiscal targets for this year and 2016 and the size of the civil service.
With cash running out and the economy seizing up as the government halts payments to suppliers and curtails investment, Tsipras faces intense pressure to capitulate soon to prevent an economic collapse.
Time is running out. A deal must be concluded before the current bailout expires at the end of June to ensure aid of €7.2bn from the programme is paid out.

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