Greeks seek debt relief as EU steps up warnings

DEBT RELIEF NOT TABOO

Nevertheless, the debt relief topic is not taboo. "There is a conversation going on," the source familiar with the negotiations said, without saying at which level it was being conducted.

Creditors are pressing Greece to achieve a sizeable primary surplus on the state budget that excludes debt repayments. This would allow Athens to set aside funds to pay off loans in the future without having to borrow yet more from international lenders.

However, the leftist-led government wants lower surpluses to free up funds for helping Greeks who have suffered worst in the depression, during which the economy has shrunk by a quarter and unemployment has soared over 25 percent.

"There is a much larger financing need for the next several years than expected. So Greece will have to take on lots more debt. That's inevitable if you have lower fiscal surpluses," the source said. "Greece does not have the capacity to take on more debt without some form of relief."

Such a deal need not necessarily involve writing down the value of the debt, something that German Chancellor Angela Merkel would be unlikely to accept. Merely pushing repayment periods into the future might do the trick.

"Extending maturities would do for many years. It's a perfectly economically reasonable way of making this manageable," the source said.

EU officials question Greek assertions that the debt is asphyxiating the economy as Athens does not have to start repaying the bailout loans until 2023. The debt is accruing interest, meaning that it will grow over the next eight years, but the annual rate is below what Italy pays and in any case the interest payments also begin only in 2023.

Nevertheless, Tsipras appears to be seeking a gesture on debt from Europe that will allow him to sell a harsh deal to his radical left Syriza party and Greek voters.

Finance Minister Yanis Varoufakis has proposed a debt swap involving the ESM, Europe's bailout mechanism, to help Athens meet the ECB repayments over the summer.

While the debate goes on, the clock ticks. "Time is not on our side," European Commission Vice President Valdis Dombrovskis told Germany's Die Welt newspaper. "We need a deal in the next few days." 875 euros)