Merkel says more work needed on Greek loan talks

Riga (AFP) - German Chancellor Angela Merkel on Friday said more work is needed on marathon loan talks with Greece but analysts argue that both sides know there is no alternative to a deal.

Speaking after a two-hour meeting late on Thursday with Greek Prime Minister Alexis Tsipras and French President Francois Hollande in Riga, Merkel urged Athens to continue talks with its international creditors.

"It was a very friendly and constructive exchange," Merkel said on the sidelines of the EU-Eastern Partnership summit in the Latvian capital.

"But it is clear, the work with the three institutions has to go on. There is still a lot to do," she added, referring to the European Union, European Central Bank and the International Monetary Fund who have bailed out Greece twice to the tune of 240 billion euros ($267 billion).

Tsipras' radical leftist government is locked in talks to obtain the remaining funds under the bailouts, with the international creditors demanding more tough austerity measures in return.

After the meeting, the 40-year-old Greek leader said he was "confident" an agreement would emerge soon.

"I am confident that we will soon be able to reach a steady, long-term and viable solution without the mistakes of the past, and that Greece will return to growth with cohesion," the prime minister said after the talks.

Greece faces a series of debt repayments beginning next month that are seen as all but impossible for it to meet without unlocking bailout funds.

Each side is trying to maximise its gains but ultimately there is common acceptance that a deal must be reached, said Natixis analyst Jesus Castillo.

"The EU wants to extract the maximum possible commitments from Greece but in the end, there is no alternative to signing a deal, even a partial one," he told AFP.

Greek government spokesman Gabriel Sakellaridis told Skai TV on Friday that a deal was possible by the end of the month.

"We have covered a significant distance in finding common ground with the creditors," Sakellaridis said.

"We believe the circumstances are ripe ... so that in the next 10 days, in May, a deal can be sealed," he said.

Merkel said she and Hollande had offered Tsipras their good offices if he needed help during the talks but it was up to Athens to reach an accord with the three creditors.

"The conclusion has to be found with the three institutions and it has to be worked very, very intensively," she said.

An aide to Hollande said earlier that the talks late Thursday had been "friendly and constructive (and had) ... focused on the desire to reach an agreement on the current programme."

A Greek government source said separately that Merkel and Hollande "understood the need for a long-term deal."

The immediate focus is what reforms the radical left Tsipras can accept in return for the release of a final 7.2 billion euros in bailout funds Athens needs to avoid defaulting on its debt and possibly crashing out of the eurozone.

According to reports, the creditors are demanding budget cuts worth 5.0 billion euros.

Sakellaridis said the talks partly hinged on higher VAT sales tax rates demanded by Greece's creditors.

The government -- which was elected in January on a pledge to eliminate austerity -- is also under pressure to cut pensions and drop plans for a hike in the minimum wage.

The delay in reaching an agreement has led to concerns Athens is running critically short of cash and may soon end up defaulting, which could set off a messy exit from the euro.

Inside the ruling party there are calls of defiance from several prominent members who say the government should stick by its campaign pledges to combat poverty and unemployment.

"We will never accept a deal that puts our agenda in the freezer," Energy Minister Panagiotis Lafazanis told parliament.

But Syriza's top European Parliament MP, Dimitris Papadimoulis, ruled out an internal revolt over the issue.

"I don't think there will be any faction or senior member of Syriza that will want to take the responsibility for pulling the rug under the PM's feet," Papadimoulis told Skai radio.