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Greece and Its Creditors Make Progress on Differences

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Greece and its creditors made a big jump Friday toward resolving disagreements that have long hobbled the country's international bailout program, including how to ease its debt burden.

Eurozone finance ministers agreed that Greece will have to prepare extra austerity measures to be implemented if it fails to reach budget targets under its bailout program.

Provided those extra measures, and others already agreed to last summer, can be nailed down in the coming days, ministers could discuss how to lighten Greece's massive debt load as early as Thursday, said Jeroen Dijsselbloem, the Dutch finance minister who presided over Friday's meeting.

A review of whether Athens is implementing the conditions linked to its latest rescue has been dragging on for months, partly because the International Monetary Fund questioned whether the government can cut spending enough to repay its debt.

"We came to the conclusion that the policy package should include a contingent package of measures," said Mr. Dijsselbloem. The extra measures will have to generate extra savings worth 2% of Greek gross domestic product, he said. That comes on top of measures worth 3% of GDP that are part of the first program review.

Those contingency measures are meant to ensure that Greece can reach an annual primary surplus, which strips out interest payments, of 3.5% of GDP by 2018. The IMF has raised doubts over whether that is possible.

Mr. Dijsselbloem also said that ministers had given a mandate to European institutions to prepare some ideas on how to further ease Greece's debt.

The IMF's managing directer, Christine Lagarde, stressed that contingency measures will only be a convincing solution if they are already put into law and can be triggered without a lengthy discussion between Greece and its creditors.

However, Ms. Lagarde also signaled that the creditors had moved closer toward each other on what is needed in terms of debt relief. The IMF believes that sufficient debt relief can be achieved without cutting the nominal value of the bailout loans, she said. That could include interest-rate holidays, interest-rate cuts and extra time to repay the loans.

Ms. Lagarde said that debt relief doesn't need to happen "on day one" after it has been agreed and can be made conditional on Greece actually implementing the austerity measures prescribed by its bailout program.

Steps to reduce the debt "would be triggered when needed, that is on completion of all the measures that are being discussed at the moment," Ms. Lagarde said.

Source: Wall Street Journal