Greece says debt deal 'very close' as European Commission remains cautious

One of the longest running sagas in economic history, the Greek debt crisis, may be about to come to an end.

Yesterday (18 May), Greece's Finance Minister Yanis Varoufakis said that a deal with the EU and IMF to release €7.2bn (£5.2bn, $8bn) of bailout money is "very close", adding "let's say a week".

The broke country is in debt to the tune of €320bn and the funds represent the final portion of a €240bn bailout package from the EU.

The Greek government, the EU and the IMF are currently thrashing out the terms under which the money will or won't be released. The leftist Syriza government, led by Prime Minister Alexis Tsipras, is hesitant to implement wide ranging pension, tax and labour market reforms that the EU and IMF believe are required to put Greece on a more stable financial footing.

Tsipras has previously said there are "red lines" that cannot be compromised on, but time is running out.

Last week the Greek government emptied its IMF reserves in order to pay €750m of interest on its existing loans, effectively cleaning out the country's reserves. If a deal is not struck soon, Athens will not be able to make its next €1.5bn repayment to the IMF on 5 June.

If the noise coming out of Greece is at least positive, the European Commission isn't so sure.

Soon after Varoufakis and Tsipras hinted that a deal is nearing, its spokeswoman said that she "can't confirm" that the EC president Jean-Claude Juncker had made a new proposal to break the deadlock.

If they can't and there is a default, then the country would almost certainly face bank runs, sovereign credit rating downgrades and massive financial instability.

This is before the likelihood of an EU exit and the introduction of a new currency is factored in.

However, this doesn't take into account goodwill.

Jim Reid of Deutsche Bank said: "The ECB may well be flexible if Greece runs out of time and there is goodwill, however the ECB is likely to be strict unless Greece shows greater willingness to compromise. The outcome paths still remain fairly complicated with a range of scenarios still in play."

On Thursday, EU leaders will meet in Riga where Tsipras will look to press them on a deal.