UPDATE 1-Greek hopes fade for quick deal on austerity cuts

By Dina Kyriakidou and Lefteris Papadimas

ATHENS, Oct 3 (Reuters) - Greece's hopes of striking a deal with its lenders before euro zone finance ministers meet next week dimmed on Wednesday, when officials admitted the two sides disagree on how much the economy will contract in 2013 - a key figure in their calculations.

After weeks of talks, Athens is still struggling to clinch an agreement on nearly 12 billion euros of cuts with the "troika" of European Central Bank, European Commission and International Monetary lenders, who fear some of the proposed savings are not feasible.

"There is still a large gap. We are trying to reach a compromise to seal a deal," Finance Minister Yannis Stournaras told reporters after meeting the troika heads.

A senior government official said that there was still ground to cover on about 2.5 billion euros worth of measures to be applied next year.

The official added that there was also disagreement on how much the economy would shrink next year, which has implications for all of the other targets.

"There is disagreement on the macroeconomic scenario. We project a recession near 4 percent, they're (troika) at 5 percent," said the official, who declined to be named.

Officials said not all hope was lost that the Greek government would resolve issues before next Monday's meeting of ministers, easing Athens's efforts to secure an already delayed 31.5 billion euro tranche of aid needed to avoid bankruptcy.

But it was increasingly likely the troika chiefs would return next week to continue their inspection.

The latest austerity package, slated for 2013 and 2014, includes a new round of wage and pension cuts - fiercely opposed by the austerity-weary public - and drastic slashing of pharmaceuticals spending, welfare benefits and plans to fire civil servants.


Prime Minister Antonis Samaras has managed to maintain the reluctant support of his Socialist and leftist allies for the unpopular cuts, but has yet to convince the troika to sign off on the package, essential to paving the way for more aid.

Those talks, complicated by an internal rift between the EU and IMF on how to resolve Greece's seemingly endless debt problems, have become bogged down in a dispute over 2 billion euros of proposed savings from health and defense cuts, which the troika has pinpointed as unlikely to be feasible.

"We are trying to convince them on the cuts from structural reforms. We are providing further facts and details," a second government official said.

Government officials made no mention of the disputed cuts after troika officials held the latest round of talks with the development minister on Wednesday.

"We didn't have a brawl, but we weren't dancing either. We exchanged ideas," said an official present at the talks.

The official said the troika also focused on issues such as boosting competitiveness, removing market barriers and cracking down on small cartels.

The troika has long demanded Greece make structural changes to reform its economy and break the influence of powerful lobbies, only to see Athens repeatedly fail to keep its pledges.

Greece is set to enter its sixth year of recession in 2013, with unemployment at record highs and public patience with austerity cuts at a low ebb.

(Additional reporting by Karolina Tagaris, Writing by Deepa Babington and Dina Kyriakidou; Editing by Hugh Lawson)

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