International creditors demanded sweeping changes to Greece's proposed tax and reform plans today, adding a fresh element of uncertainty to talks aimed at unlocking aid to avert a debt default.
Sources close to the negotiations said the creditors had presented counter-proposals covering differences on sensitive issues, just before euro zone finance ministers were due to convene to try to approve an agreement.
Before flying to Brussels, Greek Prime Minister Alexis Tsipras attacked the position of "certain" creditors - a swipe at the International Monetary Fund - as strange since he said they had rejected fiscal measures Athens put forward to plug a budget gap.
"This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed," the leftist premier tweeted.
Financial markets reacted nervously, with investors rushing into safe-haven German bonds and the euro suffering a brief sell-off. European shares dropped and U.S. stocks opened lower.
A European Union official insisted the talks had not broken down and said the exchange of different proposals was a normal part of the negotiation.
But because there is so little time left to reach a deal before Greece has to make a repayment to the IMF on June 30, the day its current bailout expires, the talks were particularly fraught.
If Greece misses that payment and is declared in default to the IMF, it could trigger a bank run, capital controls and an eventual Greek exit from the euro zone, showing that membership of the currency is not irrevocable as its founders proclaimed.
Economy Minister George Stathakis said only three of Athens' 50 proposals were still in dispute, but several sources familiar with the talks said there were many more gaps. The open issues included labour laws, collective bargaining, pension reform, public sector wages, opening up closed professions, investment as well as value-added tax and corporation tax.
BARGAINING PROCESS
"Of course we want changes and they don't, and this is part of the bargaining process, albeit less effective when done publicly," a senior official from one of the creditors said.
Several sources said International Monetary Fund chief Christine Lagarde was taking the hardest line against the Greek proposals on the table.
Tsipras met Commission President Jean-Claude Juncker and the heads of the IMF, the European Central Bank, the Eurogroup of finance ministers and the euro zone's rescue fund to try to bridge the gaps.
Looking tense, he was driven into Commission headquarters through an underground garage to avoid the usual arrival statements, and given only a perfunctory handshake by Juncker before plunging into the meeting.
Officials said the IMF was most concerned about the balance of the package, too heavily skewed towards tax increases that could further weaken the Greek economy and prove hard to collect, rather than structural reforms.
"If you ask the question 'Is this enough for the IMF to disburse?', I suspect it's not enough," one official said.
In Berlin, a senior German official said Germany could not imagine clinching an aid-for-reform deal without the IMF, which was needed not only for its funds but also its expertise.
Also still in dispute were Greek demands for debt relief, which euro zone governments do not want to address at this stage.
The Greek proposals included a series of tax hikes and higher contributions to pensions to meet budget targets.
Greece will have to put the agreed measures through its parliament by Monday so that some other euro zone parliaments can endorse the deal and unblock aid funds.
Athens must repay 1.6 billion euros to the IMF next Tuesday. EU officials said the only way to fund that was for euro zone governments to hand over nearly 2 billion euros in profits from ECB holdings of Greek government bonds purchased in 2011-12.
EMERGENCY HELP
To keep Greek banks facing a wave of deposit withdrawals afloat, the ECB increased its emergency liquidity ceiling again on Tuesday. ECB sources have said the lifeline will be extended daily as long as there is a chance of a deal by end-June.
The more concessions Tsipras makes, the more resistance he will face in parliament within his leftist Syriza party and on the streets, where a series of recent protests, some organised with Syriza's support, have 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 health reasons.
The IMF says Greece will need either some form of debt restructuring or further loans to make its finances sustainable.
But euro zone officials insisted that the creditors would not discuss any debt restructuring until after Greece implements the remainder of its bailout programme, and German Chancellor Angela Merkel has ruled out any "haircut" or debt write-off.
This will add to the difficulty of getting parliamentary approval in Athens, notably from the nationalist Independent Greeks, whose support Tsipras needs for a majority.
They also reject moves to scrap VAT exemptions enjoyed by some Greek islands.
"I could not vote for such a measure, nor, obviously, could I participate in a government violating a line on which we received a mandate from the Greek people," party leader Panos Kammenos tweeted on Tuesday.
But Economy Minister Stathakis said he was confident parliament would back a deal before June 30: "I think this balanced deal is defensible to Syriza, and in Greek society too."