ATHENS (Reuters) - Greece and its international lenders have agreed on most austerity cuts and reforms needed to unlock fresh aid for the near-bankrupt country, the lenders said as they concluded a visit to the Greek capital on Wednesday.
After months of often heated talks, Athens and its European Union and International Monetary Fund lenders appeared to be in the home stretch toward a comprehensive deal to avoid a Greek bankruptcy, though both sides acknowledged some issues remained.
"The authorities and staff teams agreed on most of the core measures needed to restore the momentum of reform and pave the way for the completion of the review," the so-called troika of IMF, European Commission and European Central Bank lenders said.
They said talks on the remaining sticking points, which according to Greek officials centre on job market reforms, will continue with the aim of reaching a deal in the coming days. Financing issues will also be discussed, they added.
Inspectors from the troika were due to leave Athens on Wednesday to brief leaders at a two-day European Union summit starting on Thursday, where Greece's future will loom large in the background despite not being the focus of talks.
Greek officials expressed hope that the country would soon get bailout funds to keep afloat and avoid a euro zone exit.
"I'm confident we're doing everything we have to do in order to get it (a deal) and get it soon, so that we can move towards a recovery," Prime Minister Antonis Samaras said at a meeting of European centre-right parties in Bucharest.
Once a deal is reached, the troika is due to present a report on Greece's progress in meeting the terms of its bailout and whether it can cut its debt down to sustainable levels.
That report is expected to show that Greece is hugely off track on its commitments, which critics blame on a lack of political will, political paralysis during repeat elections this year and a deeper than expected recession.
But with Greece due to run out of money next month and Europe determined to avoid fresh market turmoil that drags down bigger economies like Spain and Italy, Athens is expected to ultimately secure its next 31.5 billion euro aid tranche.
Still, Athens needs the blessing of the troika on an 11.5 billion euro austerity package as well as a long list of reforms first to be able to unlock that aid.
Talks on both fronts have moved slowly since July, with signs of progress tempered by tension and mistrust over the ability of Greece's political brass to push through public sector reform and generate savings.
Disagreement between the EU and the IMF on how best to deal with the Greek debt crisis have further complicated the talks.
"HARD RED LINE"
On Tuesday, the two sides resolved differences on the extent of Greece's recession next year and issues related to health spending cuts after hitting an impasse on labour reforms during an earlier round of talks, Greek officials said.
They agreed Greece's economy would contract 4.2 percent next year - a key estimate in calculations to determine whether Greek debt will be viable - after Athens initially predicted a 3.8 percent tumble and lenders forecast a 5 percent contraction.
Officials also suggested that most of the issues related to the long-discussed spending cuts package had been resolved apart from disagreement over the use of brand name or generic drugs in the state healthcare system.
"There has been substantial progress on all fronts and only some issues remain open, mainly labour and structural," a second Greek government official said.
"We are confident these will also be resolved in time."
Still, the two sides seem unable to bridge differences on controversial labour market reforms that have drawn the ire of Samaras's coalition partners.
Fotis Kouvelis, head of junior coalition partner the Democratic Left, has refused to back proposals to cut state wages and severance payments and scrap automatic wage increases.
"This is our hard red line and we're not going to back down on it," a party official said.
Both Kouvelis and Evangelos Venizelos's PASOK socialist party, the other junior coalition partner, have fought troika moves to introduce a new round of wage and pension cuts, arguing that an angry and exhausted nation cannot take more belt-tightening.
Greek journalists walked off the job on Wednesday as workers began the first of two days of strikes and work stoppages to protest the new austerity measures. Much of Greece is expected to come to a standstill during a general strike on Thursday.
Mired in its worst post-World War II crisis, Greece is struggling through its fifth consecutive year of recession. Over a quarter of Greeks are out of a job, poverty and suicide levels have jumped and thousands of businesses have shuttered in what Samaras has called Greece's very own "Great Depression".
(Additional reporting by Dina Kyriakidou, Writing by Deepa Babington; Editing by Toby Chopra)
Updated Date: Oct 18, 2012 00:15 AM