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Greece hails debt relief, urges Germany and IMF to drop austerity demands

Reuters

ATHENS (Reuters) - Greece welcomed the euro zone's offer of short-term debt relief on Tuesday but urged Germany and the International Monetary Fund to abandon their demands for harsher austerity once its bailout program expires in 2018.

Government spokesman Dimitris Tzanakopoulos called Monday's euro zone finance ministers meeting "a significant success" and pressed for the swift completion of a bailout review.

"The government will continue its effort for a comprehensive deal, if possible by the end of the year," he said.

Greece signed up to more economic reforms and austerity measures as part of an 86-billion euro bailout last year.

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It wants to wrap up the latest review to qualify for inclusion in the European Central Bank's quantitative easing (QE) program in the first quarter of 2017, which would set the stage for Greece to return to bond markets.

While short-term debt relief measures to be applied before 2018 help Greece, a European Central Bank (ECB) source said the bank could not include Greek bonds in its asset-buying program without more clarity on Greece's debt sustainability.

Despite its ambitions to conclude a deal, Greece says the euro zone's austerity demands will ravage the fragile economy.

Euro zone ministers on Monday left open for now how long after 2018 they want Greece to maintain a higher primary fiscal surplus of 3.5 percent, a factor considered crucial by the IMF.

A surplus at that level implies a heavier tax burden and perhaps more pension cuts for households.

The IMF has previously said that with the current set of reforms agreed with Athens, Greece will only reach a primary surplus of 1.5 percent of GDP in 2018 and therefore the euro zone should grant Athens more relief or demand deeper cost-cutting.

Tzanakopoulos said the IMF had on Monday pushed for Greece to adopt extra austerity measures and accused the fund of "a big contradiction" in its stance. Both the IMF and Germany needed to play a "constructive" role, he said.

"They must stop insisting on continuing a policy of extreme austerity which has been proven destructive for society and also economically ineffective," Tzanakopoulos said.

He said talks on reducing the targeted primary surpluses must continue.

"These must be lowered to give the Greek economy a chance to breathe," he said.

(Reporting by Renee Maltezou and Georgiopoulos; Additional reporting by Francesco Guarascio in Brussels; editing by Richard Lough)