Greece, lenders locked in marathon talks for bailout deal

Greece is hoping to wrap up a deal for 86 billion euros in fresh loans to pay back the ECB

Greece and its international lenders were locked in marathon talks overnight to seal a multi billion-euro bailout deal on Tuesday, racing against a countdown to European Central Bank debt repayments falling due in days.

The indebted country is hoping to wrap up a deal for 86 billion euros ($94.75 billion) in fresh loans so it can get parliamentary and other approvals for aid to flow by Aug 20, when a 3.2 billion euro debt payment is due to the ECB.

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"We are going into the final round of talks, looking at the Memorandum of Understanding from beginning to end," a senior Greek government official said during a brief break in talks in Athens, referring to the terms of the bailout accord.

The latest round of negotiations started early on Monday afternoon.

An agreement would mark the end of a painful chapter of aid talks for Greece, which fought against austerity terms demanded by creditors for much of the year before accepting a deal under the threat of being bounced out of the euro zone.

After lengthy negotiations on Sunday and Monday, Greek Finance Minister Euclid Tsakalotos said talks were going "quite well" and was optimistic that an agreement will be reached soon.

"I don't know if it will be (Tuesday) morning, but soon means soon," Tsakalotos told reporters.

During talks which dragged through the night, the sides agreed on final fiscal targets which should govern the bailout effort, aiming for a primary budget surplus (which excludes interest payments) from 2016, a government official said.

The targets, adapted from an earlier baseline scenario, foresee a primary budget deficit of 0.25% of gross domestic product in 2015, a 0.5% surplus from 2016, 1.75% in 2017, and a 3.5% surplus in 2018, the official said.

But a senior Greek government official said dealing with a mountain of non-performing loans (NPLs) in the banking sector remained a sticking point. Athens wants to set up a "bad bank" to take on the problem loans, while creditors want NPLs bundled and sold to distressed debt funds.

Officials also said the two sides had yet to agree on setting up a sovereign wealth fund in Greece designed to raise 50 billion euros from privatisations, three-quarters of which would be used to recapitalise banks and to decrease the debt.

Both sides had agreed to deregulate the country's natural gas market, sources said.

Greek banks could get an initial capital injection soon after a bailout deal is closed of as much as 10 billion euros, even before the ECB completes stress tests, a euro zone official said on Monday.

The official said such tests may not be finished before October, but that it was recognised that Greek banks urgently need capital to normalise their operations.

Popular misgivings run deep in Germany, the euro zone country that has already contributed most to Greece's two bailouts since 2010, about funnelling yet more money to Athens.

Berlin wants a deal that includes an ambitious budget plan, a credible privatisation strategy and a sustainable pension reform, Finance Ministry spokesman Juerg Weissgerber said.

Greek officials have said they expect the bailout accord to be approved by Greece's parliament on Wednesday or Thursday and then be vetted by euro zone finance ministers on Friday, paving the way for aid disbursements.

The bailout pact will be voted on in parliament as one bill with two articles - one on the loan agreement and memorandum of understanding and the second on the so-called prior actions that must be completed for aid to be released, another Greek official said. The negotiations began on July 20.

($1 = 0.9076 euro)