Europe dampens Greek hopes of swift deal as clock ticks

Greece's European lenders on Tuesday played down Athens's hopes of a swift end to negotiations on an aid agreement and said talks must speed up before the country runs out of cash.

The sober outlook from Brussels and Berlin contrasted sharply with vigorous optimism displayed in Athens, where top officials from the new leftist government made a series of public appearances to promise that a deal was just days away.

Finance Minister Yanis Varoufakis told a talk show overnight that a deal could arrive in a week, while Prime Minister Alexis Tsipras said talks were in their "final stretch".

The comments helped push Greek stocks up 2.6 percent on Tuesday.

But euro zone policymakers said talks were not moving nearly as fast as needed to clinch a deal in a short time.

"More time and effort is needed to bridge the gaps on the remaining open issues. We consider that progress is being made, albeit at a slow pace," European Commission spokesman Margaritis Schinas told a daily news briefing.

The Commission also denied a Greek newspaper report that its chief, Jean-Claude Juncker, had offered a compromise proposal to break the impasse in talks, which set a lower primary surplus target for Athens in return for tax reforms and tax hikes.

After a meeting in Berlin, the leaders of Germany and France said talks must be accelerated to free up fresh aid to Athens.

"I'd say the talks need to speed up, rather than that they are going too fast," German Chancellor Angela Merkel told a news conference. French President Francois Hollande agreed the talks with Greece needed to be "accelerated", adding: "We all have the same stance which is that Greece must stay in the euro zone."

Both leaders will meet Tsipras at an EU summit in Riga this week, where Greece is pushing for a series of bilateral meetings on the sidelines to help broker a deal before it runs out of cash.

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But Jeroen Dijsselbloem, head of the Eurogroup of euro zone finance ministers that decides on aid disbursements, said it was unlikely a deal on Greece would be struck in the Latvian capital.

"It's not on the agenda for Friday," he told Dutch broadcaster RTL. "I think it is unlikely."

JUNE DEADLINE

After staging a small economic recovery last year, Greece has returned to a full-blown crisis since Tsipras's leftist government took power in January promising to end austerity and unpopular bailout programs.

Without access to debt markets or aid, the government has found itself locked in tough negotiations as cash coffers run dry. Athens is expected to scrape through payments to government workers and pensioners this month, but payments of 1.5 billion euros to the IMF next month will pose a much bigger challenge.

A payment of about 750 million euros to the IMF last week was only made by emptying a holding account at the Fund.

Labor Minister Panos Skourletis pointed to June 5 - when Greece's next loan payment to the IMF falls due - as the next crunch point for the cash-strapped country: "We all know that if there is no solution, let's say until then, in relation to funding, things will be difficult."

Talks with the European Union and International Monetary Fund lenders have dragged on for the past four months. A successful conclusion would release of around 7.2 billion euros ($8.1 billion) in aid, but talks have stumbled over pension and labor reform proposed by the creditors and resisted by Athens.

"We believe that the pension system must be reformed but cutting pensions is not reform," Varoufakis told Greek television. "We want a surgical intervention in the pensions system, not a butchering."

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He blamed the lenders for turning down Greece's proposals and said talks should have ended in mid-March. "The comprehensive review was like a cat chasing its tail," he said.

In a speech on Tuesday, Varoufakis reiterated that Greece's debt was unsustainable and must be restructured. He accused the lenders of failing to admit that and of focusing instead on trying to achieve an arbitrary debt-to-GDP ratio in the future.

"What we are trying to achieve is to get the other side to remove itself from a failed logic ... which for political reasons they cannot acknowledge," he said.

As the talks drag on and uncertainty over Greece's future in the single currency bloc grows, a new poll showed most Greeks are unhappy with the government's negotiating strategy.

The University of Macedonia survey carried out over May 13-15 found 41 percent of Greeks felt the strategy "is not stable and is therefore sometimes right and sometimes wrong." Those who felt it was right fell to 35 percent from 72 percent in February.

As many as 61 percent believe the government should water down its pre-election pledges given the circumstances, the poll said, compared with 35 percent who want them seen through.

(Additional reporting by George Georiopoulos, Karolina Tagaris and Angeliki Koutantou in Athens, Stephen Brown and Madeline Chambers in Berlin, Writing by Deepa Babington Editing by Jeremy Gaunt and Hugh Lawson)