Greece, lenders at odds over how to close 2 billion euro 2014 budget gap

By Jan Strupczewski and Martin Santa

BRUSSELS/ATHENS (Reuters) - Greece and its international lenders remain at odds over how to close a 2 billion euro gap in Greece's 2014 budget, and the issue could drag on into next year, delaying further loans to Athens, a senior euro zone official said.

A team of officials from the 'troika' of the International Monetary Fund, the European Commission and the European Central Bank visits Athens regularly to check on progress on its bailout commitments and decide whether to release subsequent loan tranches, without which Greece would default.

The latest inspection began in September but was paused, only to resume on Nov 4 after Athens provided the lenders with information enabling them to discuss the financing of the 2014 budget.

But the talks have made no progress since then.

"The Greek authorities and the troika are still billions of miles apart on the fiscal gap for 2014," the official with direct knowledge of the talks said on condition of anonymity.

"There is no movement," the official said. "We also do not have closure yet on the final disbursement of the last review," the official said, referring to a tranche of 1 billion euros ($1.3 billion).

To get it, Athens must deliver on a series of reforms it had promised to implement by the end of September.

"There are milestones to be met related to reforms in the public sector and other steps to unlock the 1 billion euro tranche," the official said.

But in Athens, Greece's finance minister Yannis Stournaras downplayed talk the two sides estimates of the fiscal gap were far apart.

"We are not miles apart but metres apart," he told reporters after a meeting with troika officials. "Whoever made this statement does not reflect the creative talks we have had with the troika."

Another finance ministry official who declined to be named said the troika's view when it returned to Athens last week was that the fiscal gap next year would be around 2.9 billion euros but that the figure had now come down.

The official did not provide further details, adding that the troika heads would return to Athens on Friday after a Eurogroup meeting on Thursday.

Greece and its lenders are particularly at odds over the future of LARCO, Hellenic Vehicle Industry and Hellenic Defence Systems, three money-losing state companies with 2,100 workers that are costing taxpayers about 150 million euros a year.

The government has yet to prepare its two biggest water companies, EYDAP (EYDr.AT) and Thessaloniki Water (TWSr.AT), for privatisation by settling all the arrears that municipalities owe them.

It must also convince lenders it will meet a target to put 12,500 civil servants in a "mobility scheme" of forced transfers or dismissals and fire 4,000 others by the end of the year.

MEET THE MILESTONES

Asked if the lenders would set a deadline for Greece to meet the agreed milestones, the official said: "No. The deadline is there is no money."

"If the milestones are fulfilled, then the money will flow. If the milestones are not fulfilled, we sit on it."

Greece has been kept afloat by a financial lifeline from the euro zone and the IMF since 2010, with 240 billion euros of loans pledged in exchange for spending cuts and reforms.

After a six-year recession that wiped out 40 percent of household disposable incomes and sent unemployment soaring to almost 28 percent, the Greek people say they can take no more.

The coalition government argues it deserves some slack after making the biggest budget deficit reduction ever seen in the euro zone. Greece's president said his country would not yield to international pressure to impose more austerity.

Greece has rejected new tax hikes and across-the-board wage or pension cuts, although it has said there is scope for "targeted" spending cuts and "structural measures" to plug any fiscal gaps.

After EU leaders led by Germany decided in mid-2012 that Greece must remain part of the euro zone, the assumption has been that any disagreements will be solved.

The euro zone official said there was still time to sort things out, but that it was getting short.

"I would not be financially worried if we do not come to a conclusion on this review in the next 3-4 weeks, but the signals they are sending are clearly not good. I would say I'm starting to get more concerned," the official said.

The target for Athens is a primary surplus of 1.6 percent of gross domestic product for next year. The government believes it could fall short by just 500 million euros, rather than the 2 billion predicted by the Troika.

Greek authorities say a growing economy is the only way to reduce the country's debt, which stands at about 320 billion euros or 175 percent of its economic output. The troika holds almost 80 percent of that debt. ($1 = 0.7442 euros)

(Additional reporting by Lefteris Papadimas, Editing by Hugh Lawson, Ron Askew)