Duelling proposals in Greece's debt clash

(BRUSSELS) - After four months of fraught negotiations, the clash between Greece and its creditors has narrowed down to two duelling proposals, one from Athens and the other from the austerity-minded EU and IMF.

Here are the key differences in those proposals that will need unblocking to reach a deal in time to avoid a catastrophic default by Greece.

FISCAL TARGETS

The central question dividing the two sides is the state of Greece's budget, with the EU and IMF insisting Athens is running a widening deficit.

The key measure is the so-called primary surplus, the difference between public revenue and spending, excluding the payments of interest on debt.

The EU and IMF are asking for a surplus target of one percent of GDP for this year, two percent for 2016 and three percent for 2017.

But with Greece's economy in free fall, hitting those targets would require an immediate budget saving of three billion euros and potentially more without a fast recovery.

Anti-austerity Athens is asking for a much lower 0.6 percent of output this year that would require no extra saving.

This would increase to 1.5 percent next year and 2.5 percent in 2017.

VAT

In order to hit those budget targets, Greece is counting on a big hike to its valued-added tax, and the two sides are at loggerheads over the size of the increase and which sectors it applies to.

The creditors demand two VAT rates: a general one of 23 percent and a lower one of 11 percent for food, medicines and hotels to boost Greece's vital tourist industry.

The radical leftists in Athens insist on a low six percent rate for medicine, books and theatre and a medium rate of 11 percent for basic foods, energy, water, restaurants as well as hotels, magazines and newspapers.

PENSIONS

Greece's public retirement system is running a massive deficit and the IMF especially is insistent that Athens put its books in order.

The creditors demand that Greece phase in reforms immediately that would yield up to 900 million euros in savings this year and 1.8 billion euros in 2016.

To achieve this, the creditors argue Athens must close the door to early retirement and strip a raft of special benefits, including an emergency pension boost for the poor.

But the government's proposal delays the zero deficit target in the retirement system until 2017 and rules out any pension cuts to the needy.

WORK CODE

The creditors are insisting that a deep overhaul of the Greek work code continue, despite the government's pledge to roll back laws that make it easier to hire and fire in Greece, especially in the deeply-protected public sector.

DEBT

Crucially, the proposal made by the creditors makes no reference to Greece's mountain of debt, which currently stands at 180 percent of gross domestic product, nearly double the country's entire economic output over one year.

The Greek government insists the issue cannot be excluded, and demands that the European Central Bank and the EU's rescue fund draw up a solution to scale back the debt.

But forgiving Greek debt is unacceptable for members of the eurozone, despite repeated warnings by the IMF that Greece's debt is unsustainable without it.