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Greece says it will default in June without aid from lenders

Greek pensioners take part in a demonstration for better healthcare as a European Union flag and a German national flag flutter on the Athens' municipality building, on the occasion of the announcement of a common Greek-German art festival, in Athens May 20, 2015. REUTERS/Alkis Konstantinidis

By Renee Maltezou and Lefteris Papadimas

ATHENS (Reuters) - Greece will not be able to make a payment to the International Monetary Fund due on June 5 unless foreign lenders provide more aid, a senior ruling party lawmaker said on Wednesday, the latest warning from Athens that it is on the verge of default.

Prime Minister Alexis Tsipras's leftist government says it hopes to reach a cash-for-reforms deal in days, although European Union and IMF lenders are more pessimistic and say talks are moving too slowly for that.

Payments to the IMF totaling about 1.5 billion euros ($1.7 billion) fall due next month, starting with a 300 million euro payment on June 5.

"Now is the moment that negotiations are coming to a head. Now is the moment of truth, on June 5," Nikos Filis, spokesman for the ruling Syriza party's lawmakers, told ANT1 television.

"If there is no deal by then that will address the current funding problem, they won't get any money," he said.

Finance Minister Yanis Varoufakis told Britain's Channel 4 news: "If we can, on June 5, repay the IMF and pay pensions and salaries as well as the other obligations we have to our internal creditors, we shall. If not, we will have to prioritize pensioners and public sector workers."

Talks between Greece and its lenders have foundered on Athens' demand to roll back labor and pension reforms as well as the lower fiscal targets set under its bailout program.

Among concessions Athens is mulling is a tax on banking transactions to help raise revenue, though discussion of the levy is at an early stage, two sources close to the talks said.

Varoufakis confirmed the levy was on the table and added that Athens had alternative proposals to its own plans for a value-added tax hike, a key issue in the talks.


"Many people ask me: Why don't you conclude the deal?" he said at an Athens business event. "There is nothing more that we, who are taking part in this negotiation for four months now, night and day, want more. To conclude this deal and start operating like a normal country."

Greek officials have already warned several times in recent weeks that Athens could run out of cash, only to then meet their obligations through draconian measures such as ordering state entities to hand over cash or, in the case of an IMF payment last week, by emptying out an IMF reserve account.

Four days before the payment was made, Prime Minister Alexis Tsipras wrote to EU and IMF lenders warning that Athens could not make the 750 million euro payment - prompting accusations of a bluff that has deepened mistrust.

Still, fresh aid will be needed sooner or later to avoid bankruptcy. Ratings agency Moody's said there was a high likelihood that capital controls and a deposit freeze could be imposed as savers pull deposits from banks over fears of a national bankruptcy and an exit from the euro zone.

The European Central Bank raised the cap on the emergency liquidity assistance that Greek banks can draw from the Greek central bank by just 200 million euros, taking the ceiling to 80.2 billion euros, a banking source told Reuters on Wednesday, adding that the reason behind the small increase was that deposit outflows had stabilized at very low levels.

The source also said the ECB had held a "long and exhaustive" discussion on the "haircut" or discount applied to collateral offered by Greek banks, but that no decision had been made to increase it.

Despite the specter of impending bankruptcy, Tsipras has put on a brave face in public and will lobby European leaders at the EU summit in Riga this week for a political agreement to break the impasse.


Briefing top parliamentary officials in his party on Tuesday, Tsipras said the government was aiming for a deal by June 3 that would release over 7 billion euros in pending aid from the bailout, said one lawmaker who attended the briefing.

The premier also expressed optimism that differences with lenders on value-added tax hikes, privatizations and budget targets could be bridged to strike a deal now. Greece is pushing to delay discussion of pension reform to later this year, the lawmaker said.

Such a delay would be unlikely to win the sympathy of the lenders, who want Athens to offer more concessions and focus on bridging differences at technical-level talks aimed at trying to make the numbers on work.

EU Economic Affairs Commissioner Pierre Moscovici said a deal could still be struck in the coming weeks, but would require political will, as there were still wide differences on labor and pension issues.

"The Greek government has shown it can be creative in reimbursing its lenders but we must go quickly (in striking a deal)," he told a French Senate committee gathering in Paris. "It's a matter of days and weeks."

In a reminder of the early acrimony in talks between the two sides, Varoufakis told the German weekly Die Zeit that his German counterpart Wolfgang Schaeuble had made mistakes in his analysis of Greece.

"It is frustrating that we are not able to speak with each other in a context where arguments count more than relative power," said Varoufakis, who has been sidelined in recent weeks in negotiations with lenders.

(Additional reporting by Angeliki Koutantou and George Georgiopoulos in Athens, Ingrid Melander in Paris and Stephen Brown in Berlin, Writing by Deepa Babington; Editing by Jeremy Gaunt and Kevin Liffey)