Greek ruling party heads toward split before bailout vote

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Greek Prime Minister Alexis Tsipras's Syriza party looked set to split after the leader of its far-left faction called on Thursday for a new movement to fight a bailout deal that lawmakers are due to vote on in the coming hours.

Days after striking a deal with foreign creditors, Tsipras is asking parliament to approve a bailout agreement that pledges tax rises and spending cuts in exchange for 85 billion euros in fresh loans. It will be Greece's third financial rescue program agreed with creditors in five years.

The vote will test the strength of a rebellion by anti-austerity Syriza lawmakers, which could raise pressure on Tsipras to call elections as early as September.

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Greek ruling party heads toward split before bailout vote
Pro-Euro demonstrators shout slogans as they hold Greek and European Union flags in front of the Greek Parliament during a rally at Syntagma square in Athens, Thursday, July 9, 2015. Hopes that Greece can get a rescue deal that will prevent a catastrophic exit from the euro rose on Thursday, after key creditors said they were open to discussing how to ease the country's debt load, a long-time sticking point in their talks. (AP Photo/Petros Karadjias)
Supporters of the No vote dance at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans. (AP Photo/Petros Giannakouris)
A supporter of the No vote waves a Greek flag in front of the parliament after the results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greeks overwhelmingly rejected creditors' demands for more austerity in return for rescue loans in a critical referendum Sunday, backing Prime Minister Alexis Tsipras, who insisted the vote would give him a stronger hand to reach a better deal. (AP Photo/Emilio Morenatti)
People gather in front of the White Tower, a city's landmark, in Thessaloniki on July 5, 2015, after early results showed those who rejected further austerity measures in a crucial bailout referendum were poised to win. Over 61 percent of Greek voters on July 5 rejected fresh austerity demands by the country's EU-IMF creditors in a historic referendum, official results from 50 percent of polling stations showed. AFP PHOTO /Sakis MitrolidisAFP PHOTO /Sakis Mitrolidis (Photo credit should read SAKIS MITROLIDIS/AFP/Getty Images)
People celebrate in Athens on July 5, 2015 after the first exit-polls of the Greek referendum. Over 60 percent of Greeks rejected further austerity dictated by the country's EU-IMF creditors in a referendum, results from 20 percent of polling stations showed. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
Supporters of the No vote react after the first results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans. (AP Photo/Petros Giannakouris)
Supporters of the No vote react after the first results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans. (AP Photo/Petros Giannakouris)
A supporter of the No vote waves a Greek flag after the referendum's exit polls at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as officials counted the results of a referendum Sunday on whether to accept creditors' demands for more austerity in exchange for rescue loans, with three opinion polls showing a tight race with a narrow victory likely for the "no" side. (AP Photo/Emilio Morenatti)
Greece's Prime Minister Alexis Tsipras casts his vote at a polling station in Athens, Sunday, July 5, 2015. Greeks began voting early Sunday in a closely-watched, closely-contested referendum, which the government pits as a choice over whether to defy the country's creditors and push for better repayment terms or essentially accept their terms, but which the opposition and many of the creditors paint as a choice between staying in the euro or leaving it. (AP Photo/Petros Karadjias)
A supporter of the No vote waves a Greek flag after the first results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans. (AP Photo/Emilio Morenatti)
Supporters of the No vote react after the first results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans.(AP Photo/Petros Karadjias)
Protesters chant slogans in front of the Greek parliament in central Athens, on June 29, 2015. Some 17,000 people took to the streets of Athens and Thessalonique to say 'No' to the latest offer of a bailout deal, accusing Greece's international creditors of blackmail. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
Carrying banners calling for a 'NO' vote in the forthcoming referendum on bailout conditions set by the country's creditors, protesters gather in front of the Greek parliament in Athens, on June 29, 2015. Some 17,000 people took to the streets of Athens and Thessalonique to say 'No' to the latest offer of a bailout deal Monday, accusing Greece's international creditors of blackmail. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
An anti-EU protester burns an EU flag in front of the European Comission offices in Athens on July 2, 2015, during a demonstration supporting the no vote for the upcoming referendum. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / Louisa Gouliamaki (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
Riot police march alongside anti-EU protesters in front of the European commision offices in Athens on July 2, 2015, during a demonstration supporting the no vote for the upcoming referendum. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / Louisa Gouliamaki (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
People sing the greek national anthem under a giant greek flag, during a pro-European demonstration in front of the Greek parliament in Athens on June 22, 2015. Greece's international lenders raised hopes for a vital bailout agreement this week to save Athens from default and a possible euro exit, despite warning no deal was likely at an emergency summit. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
A protester bears on her wrist the ''NO'' slogan in reference to the forthcoming referendum on bailout conditions set by the country's creditors, during a demonstration in front of the Greek parliament in Athens on June 29, 2015. Greece shut its banks and the stock market and imposed capital controls after creditors at the weekend refused to extend the country's bailout past the June 30 deadline, prompting anxious citizens to empty ATMs. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)
ATHENS, GREECE - JUNE 22: A man waves a EU flag as pro-Euro protesters take part in a rally in front of the Parliament on June 22. 2015 in Athens, Greece. Thousends of people attended the rally in support of Greece remaining in the European Union. The Eurozone's 19 national leaders held an emergency summit in Brussels to discuss the crisis and welcomed new proposals from the Greek government after talks today to haul Athens back from the brink of bankruptcy. (Photo by Milos Bicanski/Getty Images)
Protesters participate a demonstration in front of the Greek parliament in Athens on June 29, 2015. Greece shut its banks and the stock market and imposed capital controls after creditors at the weekend refused to extend the country's bailout past the June 30 deadline, prompting anxious citizens to empty ATMs. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
Protesters demonstrate during a pro-European demonstration in front of the Greek parliament in Athens on June 22, 2015. Greece's international lenders raised hopes for a vital bailout agreement this week to save Athens from default and a possible euro exit, despite warning no deal was likely at an emergency summit on Monday. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)
Protesters demonstrate during a pro-European demonstration in front of the Greek parliament in Athens on June 22, 2015. Greece's international lenders raised hopes for a vital bailout agreement this week to save Athens from default and a possible euro exit, despite warning no deal was likely at an emergency summit on Monday. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
Leftist youth hold a placard reading 'No more recession, out of the eurozone' during a demonstration in Athens calling for Greece's exit from the eurozone on June 28, 2015. Greece weighed drastic banking restrictions to stave off a financial collapse as anxious Greeks emptied cash machines amid fears that banks will be closed this week. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
Foreign anti-EU activists protest in front of the Greek parliament in Athens, during a demonstration calling for 'NO' at referendum and for Greece's exit from the eurozone on June 28, 2015. Greek Prime Minister Alexis Tsipras stunned Europe late Friday with a surprise call for a July 5 referendum on the latest cash-for-reforms package and advised voters against backing a deal that he said spelled further 'humiliation'..AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
ATHENS, GREECE - JUNE 22: Pro-Euro protesters take part in a rally in front of the Parliament on June 22. 2015 in Athens, Greece. Thousends of people attended the rally in support of Greece remaining in the European Union. The Eurozone's 19 national leaders held an emergency summit in Brussels to discuss the crisis and welcomed new proposals from the Greek government after talks today to haul Athens back from the brink of bankruptcy. (Photo by Milos Bicanski/Getty Images)
Protesters walk over stickers reading 'Better drachma than submission' during a demonstration calling for an exit from the eurozone and a 'No' vote in the upcoming referendum in Athens on June 28, 2015. Greece weighed drastic banking restrictions to stave off a financial collapse as anxious Greeks emptied cash machines amid fears that banks will be closed this week. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
ATHENS, GREECE - JUNE 18: Pro-European Union protesters take part in a rally in front of the parliament on June 18, 2015 in Athens, Greece. Thousends people attended the rally in support of Greece remaining in the EU. About three-quarters of Greeks support keeping the EU's common currency, according to recent polls. Greece and creditors failed to reach an agreement Thursday in troubled bailout talks, with a June 30 deadline looming. .(Photo by Milos Bicanski/Getty Images)
Protesters participate in a demonstration calling for a 'No' vote in the forthcoming referendum on bailout conditions set by the country's creditors, in front of the Greek parliament in Athens on June 29, 2015. Greece shut its banks and the stock market and imposed capital controls after creditors at the weekend refused to extend the country's bailout past the June 30 deadline, prompting anxious citizens to empty ATM's. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)
A woman is seen through a banner during a demonstration to protest against EU austerity policies and in support of the Greek government in Thessaloniki on 17 June, 2015. All eyes are on a meeting of the 19 eurozone countries to take place on June 18 in Luxembourg, but several officials including Greek Finance Minister Yanis Varoufakis said they were not expecting a breakthrough there either. AFP PHOTO /Sakis Mitrolidis (Photo credit should read SAKIS MITROLIDIS/AFP/Getty Images)
A man holds a placard with a Greek flag during a demonstartion to protest against EU austerity policies and in order to support the Greek government in Thessaloniki on 17 June, 2015. All eyes are on a meeting of the 19 eurozone countries to take place on June 18 in Luxembourg, but several officials including Greek Finance Minister Yanis Varoufakis said they were not expecting a breakthrough there either. AFP PHOTO /Sakis Mitrolidis (Photo credit should read SAKIS MITROLIDIS/AFP/Getty Images)
Communist-affiliated protesters throw leaflets from atop the occupied Finance Ministry in central Athens during their rally against EU-IMF loan deal on June 11, 2015. The Greek government said it would 'intensify' efforts to resolve differences with its EU-IMF creditors to reach a deal that would give the country desperately needed bailout funds. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
Members of left wing parties shout slogans behind a burning European Union flag during an anti-EU protest in the northern Greek port city of Thessaloniki, Sunday, June 28, 2015. Greek Prime Minister Alexis Tsipras says the Bank of Greece has recommended that banks remain closed and restrictions be imposed on transactions, after the European Central Bank didn't increase the amount of emergency liquidity the lenders can access from the central bank. (AP Photo/Giannis Papanikos)
A protestor holds a banner reading in Greek "Stop to new and old bailouts" during an anti bailout protest in Syntagma square in central Athens, Thursday, June 25, 2015. EU leaders met for an EU summit to discuss, among other issues, migration and the Greek bailout. (AP Photo/Petros Karadjias)
Pensioners chant slogans during an anti-austerity protest in Athens, Tuesday, June 23, 2015. Greece's government defended Tuesday the billions worth of "harsh" new budget savings it has offered in talks with creditors, as some of the governing party's own lawmakers spoke out against them. (AP Photo/Petros Giannakouris)
A Greek pensioner from the island of Crete stands in front of a police vehicle during an anti-austerity protest organized by pensioners' unions in Athens, Tuesday, June 23, 2015. Greece's government defended Tuesday the billions worth of "harsh" new budget savings it has offered in talks with creditors, as some of the governing party's own lawmakers spoke out against them. (AP Photo/Petros Giannakouris)
Silhouettes of supporters of a NO vote in the upcoming referendum, are thrown on a "NO" banner during a rally at Syntagma square in Athens Monday, June 29, 2015. Anxious Greek pensioners swarmed closed bank branches and long lines snaked at ATMs as Greeks endured the first day of serious controls on their daily economic lives ahead of a July 5 referendum that could determine whether the country has to ditch the euro currency and return to the drachma. (AP Photo/Petros Karadjias)
A supporter of a NO vote in the upcoming referendum, waves a Greek flag in front of the parliament during a rally at Syntagma square in Athens Monday, June 29, 2015. Anxious Greek pensioners swarmed closed bank branches and long lines snaked at ATMs as Greeks endured the first day of serious controls on their daily economic lives ahead of a July 5 referendum that could determine whether the country has to ditch the euro currency and return to the drachma. (AP Photo/Petros Karadjias)
Supporters of the NO vote in the upcoming referendum, gather during a rally at Syntagma square in Athens on Monday, June 29, 2015. Anxious Greek pensioners swarmed closed bank branches and long lines snaked outside ATMs as Greeks endured the first day of serious controls on their daily economic lives ahead of a July 5 referendum that could determine whether the country has to ditch the euro currency and return to the drachma. (AP Photo/Petros Karadjias)
Tom McGrath, a vendor who sells miniatures, originally from Belfast, Northern Ireland, who has lived in Greece for the last 20 years, sits next to a satirical sign written by him, in the Plaka tourist district of Athens, Friday, June 26, 2015. With Greece facing a potential debt default June 30, European leaders have demanded finance ministers from eurozone countries reach an agreement on Saturday that will allow creditors to unblock the remaining 7.2 billion euros in Greece's international bailout program. (AP Photo/Thanassis Stavrakis)
A pensioner holds a flag bearing the picture of Argentinean revolutionary Ernesto "Che" Guevara during an an anti-austerity protest in Athens, Tuesday, June 23, 2015. Greece's government defended Tuesday the billions worth of "harsh" new budget savings it has offered in talks with creditors, as some of the governing party's own lawmakers spoke out against them. (AP Photo/Petros Giannakouris)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
A man holds a placard reading 'FMI+Troika=Criminals' as he protests in front of the European Commission headquarters in Barcelona during a demonstration in support of Greece, on June 29, 2015. Greece blindsided creditors on June 27, 2015 by calling a referendum for July 5 on the latest bailout proposal being offered to Greece, a move interpreted by its creditors as Athens' desire to break off negotiations. AFP PHOTO / LLUIS GENE (Photo credit should read LLUIS GENE/AFP/Getty Images)
A protester holds a Greek flag the ''NO'' slogan in reference to the forthcoming referendum on bailout conditions set by the country's creditors, during a demonstration in front of the Greek parliament in Athens on June 29, 2015. Greece shut its banks and the stock market and imposed capital controls after creditors at the weekend refused to extend the country's bailout past the June 30 deadline, prompting anxious citizens to empty ATMs. AFP PHOTO / ARIS MESSINIS (Photo credit should read ARIS MESSINIS/AFP/Getty Images)
ATHENS, GREECE - JUNE 22: Riot police stand with shields as pro-Euro protesters take part in a rally in front of the Parliament on June 22. 2015 in Athens, Greece. Thousends of people attended the rally in support of Greece remaining in the European Union. The Eurozone's 19 national leaders held an emergency summit in Brussels to discuss the crisis and welcomed new proposals from the Greek government after talks today to haul Athens back from the brink of bankruptcy. (Photo by Milos Bicanski/Getty Images)
A protester burns a five-euro banknote during a demonstration calling for an exit from the eurozone and a 'No' in the upcoming referendum in Athens on June 28, 2015. Greece weighed drastic banking restrictions to stave off a financial collapse as anxious Greeks emptied cash machines amid fears that banks will be closed this week. AFP PHOTO / LOUISA GOULIAMAKI (Photo credit should read LOUISA GOULIAMAKI/AFP/Getty Images)
Protesters take part in a demonstration in front of the Greek parliament in Athens on June 29, 2015. Greece shut its banks and the stock market and imposed capital controls after creditors at the weekend refused to extend the country's bailout past the June 30 deadline, prompting anxious citizens to empty ATMs. AFP PHOTO / Angelos Tzortzinis (Photo credit should read ANGELOS TZORTZINIS/AFP/Getty Images)
Supporters of the No vote celebrate after the results of the referendum in the northern Greek port city of Thessaloniki, Sunday, July 5, 2015. Greeks overwhelmingly rejected creditors’ demands for more austerity in return for rescue loans in a critical referendum Sunday, backing Prime Minister Alexis Tsipras, who insisted the vote would give him a stronger hand to reach a better deal. (AP Photo/Giannis Papanikos)
A supporter of the No vote shouts slogans after the results of the referendum in the northern Greek port city of Thessaloniki, Sunday, July 5, 2015. Greeks overwhelmingly rejected creditors’ demands for more austerity in return for rescue loans in a critical referendum Sunday, backing Prime Minister Alexis Tsipras, who insisted the vote would give him a stronger hand to reach a better deal. (AP Photo/Giannis Papanikos)
Supporters of the No vote react after the results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans. (AP Photo/Emilio Morenatti)
Children wave Greek flags as supporters of the No vote react after the first results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans. (AP Photo/Petros Giannakouris)
Supporters of the No vote react after the referendum's exit polls at Klafthmonos square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as officials counted the results of a referendum Sunday on whether to accept creditors' demands for more austerity in exchange for rescue loans, with three opinion polls showing a tight race with a narrow victory likely for the "no" side. (AP Photo/Petr David Josek)
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Parliamentary speaker Zoe Konstantopoulou, one of the Syriza hardliners who oppose the deal, snubbed a request from Tsipras to speed up handling of the bailout bill so that it can be voted on well before euro zone finance ministers meet in Brussels to vet the agreement deal on Friday.

As midnight passed in Athens, the plenary debate had yet even to start as Konstantopoulou raised a series of procedural questions and objections, meaning no vote can be held at least until well into the early hours of Friday.

Some lawmakers accused Konstantopoulou, a lawyer, of deliberately stalling. "It's a crazy situation. She is torturing us. She is delaying the whole process because she has a different view from the prime minister," said one lawmaker, who declined to be named.

The rebels' leader, former energy minister Panagiotis Lafazanis, took a step toward breaking away from Syriza, a coalition of leftist groups which stormed to power in January promising to reverse austerity policies demanded by the euro zone and International Monetary Fund creditors.

"The fight against the new bailout starts today, by mobilizing people in every corner of the country," said a statement signed by Lafazanis and eleven other Syriza members posted on the far-left faction's Iskra website.

The statement called for founding a "united movement that will justify people's desire for democracy and social justice", although it did not explicitly call for a new party or a split from Syriza.

The government responded by saying the move "finalizes his decision to choose a different path from that of the government and Syriza".

The rebels insist the government should stand by the promises on which it was elected, to reverse the waves of spending cuts and tax rises which have had a devastating effect on an already weak economy over the past few years.

Parliament, however, is expected to approve the bailout agreement by a comfortable margin when it finally votes since opposition parties have promised their backing for the government to ensure Greece does not return to financial chaos.

Once the bill is passed, the euro zone finance ministers are expected to pave the way for disbursement of aid before a 3.2 billion euro debt payment to the European Central Bank falls due next week.

"SERIOUS CONCERNS"

Tsipras has faced a rebellion among about a quarter of his 149 lawmakers since agreeing last month to the bailout deal under the threat of a banking collapse and euro zone exit.

He is expected to tighten his grip over most of Syriza when the party holds a special congress to debate its differences, after which he is widely expected to call early elections to seal popular support for the deal.

Finland, one of the euro zone countries most skeptical about pouring yet more aid into Greece, backed the bailout on Thursday. But parliament in Germany, the biggest contributor to the deal, has yet to approve it.

A poll showed on Thursday that more than half of Germans oppose the third bailout while the vast majority do not believe Athens will implement economic reforms it demands.

Tsipras has long argued Greece cannot repay all its huge debts and demanded a partial write-off. However, the creditors - the European Commission, ECB and IMF - have agreed to consider the issue only after a review in October of the government's implementation of its side of the deal.

An analysis seen by Reuters said the creditor institutions had "serious concerns" about the sustainability of Greek public debt. However, sustainability could be achieved without any write-off by extending grace periods before Athens has to start paying interest and principal on its bailout loans.

Months of bitter negotiations between Athens and the creditors have shaken an economy which last year had been pulling out of a long depression before turning down again.

Data on Thursday showed the economy returned to growth in the second quarter, confounding economists' expectations of a deepening recession, but it is likely to have worsened since then as the government imposed capital controls on June 29 to save the Greek banking system from collapse.

The bailout deal is based on forecasts that the economy will shrink between 2.1 and 2.3 percent this year. Nikos Magginas, an economist at National Bank, said the surprise data offered hope the fall could be less than 2 percent.

(Additional reporting by Michele Kambas, Tina Bellon and Michelle Martin; writing by David Stamp and Deepa Babington; editing by John Stonestreet)

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