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All Eyes On Brussels As Greece & Creditors Meet

Eurozone Greece 062415

Greece and its creditors are holding crucial talks in Brussels on Wednesday to reach an agreement over new reform proposals to be presented for approval at a meeting of Eurozone finance ministers later in the day that could unlock financial aid for the country and help it avoid a default and an eventual exit from the euro.

European Commission President Jean-Claude Juncker, European Central Bank President Mario Draghi, International Monetary Fund Managing Director Christine Lagarde and Eurogroup Chief Jeroen Dijsselbloem held talks in Brussels. They will be joined by Greek Prime Minister Alexis Tsipras later on.

The Eurogroup meeting is scheduled for 19 hrs Brussels time and a two-day European Council summit on migration will begin on Thursday. EU officials are trying to avoid a spill-over of the Greek talks into the upcoming European Council meeting.

Meanwhile, Tsipras kindled 'Grexit' fears as he left for Brussels. He told lawmakers in Athens that creditors rejected some of the reform proposals submitted on Monday, which had initially raised optimism that a deal was possible this week.

"The repeated rejection of equivalent measures by certain institutions never occurred before-neither in Ireland nor Portugal," Tsipras said in a twitter message.

"This odd stance seems to indicate that either there is no interest in an agreement or that special interests are being backed."

Citing unidentified officials close to the talks in Brussels, reports said creditors presented a counter proposal to Greece, a revised version of the five-page plan offered early this month in Berlin. Creditors' proposal, which was reportedly rejected by Greece, demanded a 1 percent of GDP increase in VAT revenues, pension reforms and a bigger cut in defense spending, among others, Greek media reports said.

Last minutes differences between Greece and its creditors over reforms suggest that Wednesday is going to be a long day of negotiations before a deal is clinched which could unlock EUR 7.2 billion aid for the country. German officials said on Wednesday that there was "still a long way to go" for sealing a deal.

Greece faces a EUR 1.6 billion payment to the IMF on June 30, after the government decided not to make a payment due to the lender on June 5 and sought to bundle the four payments this month into a single payment. Greek government officials have suggested that the country cannot make the payment without further aid.

It was the first time during the five-year long crisis that the country delayed a payment to the IMF. If Athens fails to strike a deal with its creditors, Greece cannot honor the payment due to the lender, leading to a default that could pave the way for the country's exit from Eurozone and even from the EU.

Many economists and observers suggest any deal this week will only be a short-term relief for Greece, which needs more financial support over the coming years, leading to speculation of a third bailout for the country in future.

Failing a deal, the existing bailout would expire at the end of this month. Greece was the first euro area country to be bailed-out by the EU & IMF in 2010.

In Athens, several lawmakers from both ruling anti-austerity Syriza party as well as the opposition, apparently reacted angrily to proposals for higher taxes and pension contributions. This has raised concern that the new proposal may fail to get approval from the Greek parliament, which has to vote on the proposal before June 30.

As the situation remains in flux, the ECB raised the ceiling of the emergency liquidity assistance or ELA, it provides to Greek banks for a third time this week on Wednesday, reports initially said citing sources without disclosing the size of increase.

However, it emerged later in the day that the Bank of Greece made no request for an extension on Wednesday. After the two increases this week, the emergency support cap stands around EUR 89 billion.

The ECB has shown remarkable patience with Greece by extending emergency liquidity support, now on a daily basis, observers say. The bank also said this week that it stands ready to provide further support whenever required.

Extra emergency assistance was extended after deposit withdrawals at the country's banks rapidly climbed on increasing fears of an exit from the euro. However, if no deal materializes this week, Greek banks risk losing this crucial lifeline and the country would be faced to implement capital controls.

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