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The euro area and the International Monetary Fund signaled a deal on Greece's next bailout installment is within reach while setting a hurdle that the Greek government may find difficult to clear.
Euro-area finance ministers and IMF Managing Director Christine Lagarde said a long-delayed accord to unlock more funding for Athens could be struck within days as long as Greece approves "contingency measures" to ensure a 2018 budget-surplus target is met.
Greek Finance Minister Euclid Tsakalotos said legislating on that basis isn't allowed in Greece, a factor that may dash hopes for a political agreement on April 28.
"We believe that substantial progress has been made" and are "close to an agreement on a number of key areas," Jeroen Dijsselbloem, the Dutch finance minister who chairs the group of his euro-area counterparts, told reporters after they met on Friday in Amsterdam. "The policy package should include a contingent package of additional measures that would be implemented only if necessary."
Greek negotiators have been locked in talks with its creditors for months, trying to agree on austerity steps needed for more loans, with Prime Minister Alexis Tsipras arguing his plans are sufficient to hit a target for a budget surplus excluding interest payments of 3.5 percent of gross domestic product in 2018.
He has the support of European creditors while facing demands for further measures from the IMF, whose continued participation in the $97 billion rescue is a condition for euro nations such as Germany.
The IMF sees the current Greek measures leading to a primary surplus of 1.5 percent of GDP in 2018, while Greece and its euro partners expect 3.5 percent. The 2 percentage-point difference equals about 3.5 billion euros.
While such steps are a possible solution, Greece's creditors would have to accept a constraint under Greek legislation, Tsakalotos said.
"Within Greek law, you cannot legislate contingently," he told reporters in Amsterdam. "That means, you cannot say 'you will do X if the state of the world Y is in place in 2018 or 2019.'" Dijsselbloem responded to those concerns, saying that any security mechanism would be designed for extra security and in a way that was "legally possible."
"The institutions are going to work with the Greek authorities starting today or tomorrow to design those contingency measures," Dijsselbloem said. "We can't and we won't we don't even want to break through legal constraints that are there in Greece."
Beyond legal considerations, these steps could be politically toxic for Tsipras after he promised Greeks last year that his government would spare them further spending cuts.
"Greece's political capacity to pass the required measures is now even more dubious than before," Wolfango Piccoli, an analyst at Teneo Intelligence in London, said in an e-mailed report on Friday. "Parliamentary passage might still be possible in Athens, but it is already clear that any vote will be close."
Dijsselbloem took a tough line on the nature of any Greek contingency package.
"The contingency mechanism needs to be credible, legislated upfront, automatic and be based on objective factors which would trigger these contingent measures," he said. "That needs further work."
The carrot for Greece is that an accord to release more aid will open the way for talks on debt relief for the country a long-standing pledge and a condition for the IMF's continued backing.
Greece, Europe's most indebted country when the load is measured as a percentage of GDP, has been offered the prospect of lower interest rates and longer maturities on European rescue loans.
Tsakalotos said debt relief is crucial to get Greece, whose economic output has shrunk by about a quarter since the start of the debt crisis, back on track. He said his government is discussing various ways to ensure a credible accord with creditors to unlock aid.
"We are seriously engaged with the Europeans to find a commitment mechanism," Tsakalotos said.
Other participants at the Amsterdam meeting signaled that a compromise can be reached because a repeat of the 2015 stalemate that almost forced Greece out of the 19-nation euro would be too costly for all.
In a sign that differences between the creditor institutions were being bridged, Lagarde told reporters that Greek debt sustainability is feasible without a haircut, something that euro-area finance ministers have also repeatedly ruled out.
"This time it is very clear that the two sides are bending over backwards to find a solution," Maltese Finance Minister Edward Scicluna said in an interview after the meeting. "They are really working hard toward a solution because it is good for everybody."