April 3, 2017 / 4:03 PM / 3 years ago

Latest rift in Greek bailout talks dashes hopes for deal in Malta

ATHENS (Reuters) - A new rift between Athens and the International Monetary Fund over pensions and labor reforms has dealt a blow to an initial accord, dashing hopes for a bailout review deal before a meeting of euro zone finance ministers this week.

FILE PHOTO: People look at pots on display at a shop in central Athens, Greece, March 22, 2017. REUTERS/Alkis Konstantinidis

Talks between Athens, the European Union and the Washington-based IMF have dragged on for months due to differences over Greece’s fiscal progress, labor and energy market reforms. The delays have revived fears of a new crisis in Europe, which is already reeling from Britain’s decision to exit the union.

Sources close to the talks said Greece and its creditors had reached an initial agreement on the main issues of the bailout review in Brussels last week but they hit a last-minute snag.

Prime Minister Alexis Tsipras’ leftist-led government, which has been sliding in opinion polls, pulled back on the timing of agreed pension cuts, one source said. This prompted the IMF to seek a renegotiation on labor reforms, another source said.

A third source said “there were objections (to the deal), which did not come directly from the institutions involved in the talks”, without elaborating.

EU/IMF mission chiefs were initially expected to return to Athens to sort out the details before a meeting of euro zone finance ministers in Malta on Friday.

“An agreement had been reached on the main parts in Brussels but then there was a breakdown,” one of the sources said.

Athens agreed in February to take more austerity measures to convince the IMF to participate in its current bailout program, as sought by many EU countries facing national elections this year. The move helped speed up the negotiations which continued in Athens and Brussels.

The agreed measures, worth 2 percent of gross domestic product, included lowering the tax-free threshold to about 6,000 euros and cutting pension spending - one of the highest in the euro zone - in 2019, a year after Greece’s bailout expires.

Athens had won over some concessions on labor reforms, a key demand by the IMF which has not yet decided if it will participate in the country’s third bailout program.

Alternate Foreign Affairs Minister George Katrougalos told Skai radio the IMF wanted more concessions from the Greek side.

“Although there was a done deal, following concessions from both sides ... they are asking for more,” he said, adding that the latest demands concerned labor reforms.

The Commission said on Friday there was no fixed date for the mission chiefs’ return. Talks continue via teleconference.

If concluded the review will unlock vital bailout funds. Greece faces big debt repayments in July and needs the cash.

“Building on progress already made in talks, the institutions are continuing consultations from headquarters, said Commission spokesman Margaritis Schinas on Monday. “The aim is to lay the ground for the conclusion of the second review as soon as possible.”

Reporting by Renee Maltezou and Lefteris Papadimas; Additional reporting Jan Strupcewski in Brussels; Editing by Andrew Bolton

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