Greece struck an outline deal with creditors on terms of a proposed €86bn rescue package on Tuesday, marking a breakthrough before a crucial August 20 deadline for its next big debt repayment.

The European Commission confirmed that negotiators had “achieved an agreement in principle”. However, Germany, which alongside other eurozone members must ratify the proposal for a third bailout for Greece, appeared reluctant to give its blessing while talks remain open on some details.

Chancellor Angela Merkel told Greek prime minister Alexis Tsipras on Monday night she wanted more time to complete talks and argued for a bridging loan rather than a rushed deal which would need to be put to the German parliament for ratification as early as next week.

The agreement reached on Tuesday between Athens and its bailout monitors — the International Monetary Fund, the European Central Bank and the commission — covers the main points of a sweeping three-year fiscal and structural reform programme.

Most of the reforms that the Greek government must implement immediately before creditors will begin to release funds from the new package have been agreed. But final details of these so-called “prior actions” still need to be worked out on “one or two items”, an official said.

Mr Tsipras recalled Greece’s parliament to enact the reforms on Thursday. Among the prior actions it will pass into law are a new €50bn privatisation programme, measures to tackle non-performing loans and the full liberalisation of energy markets.

Negotiators have agreed sharply reduced fiscal targets to reflect Greece’s worsening economic situation, with output now projected to shrink this year by between 2.1 per cent and 2.3 per cent, Greek officials said.

The outline deal calls for adopting a supplementary budget for 2015, projecting a 0.25 per cent primary deficit — before making payments on debt — instead of the primary surplus of 3 per cent of national output forecast in the current budget, the officials added. The primary surplus forecasts for 2016 and 2017 are also significantly lower, at 0.5 per cent and 1.75 per cent of national output instead of 4.5 per cent in 2016 and 4.2 per cent in 2017.

Jens Spahn, German deputy finance minister, cautioned that Berlin would now be “checking carefully” the outline agreement and warned: “This must hold for three years, and not for three days.”

Finance ministers from all 28 EU member states took part in a conference call on Tuesday, a sign that the bloc may yet have to tap EU funds should Greece require a bridging loan to meet its obligations. Athens is due to make a €3.2bn debt repayment to the ECB on August 20.

Eurozone finance ministers were expected to meet on Friday to review the outline agreement, although this has yet to be made official.

The Commission refused to say what parts of the package were still being discussed.

George Stathakis and Euclid Tsakalotos, Greece’s economy and finance ministers, began intensive talks two weeks ago in Athens with bailout monitors after the leftwing Syriza government reversed its opposition to further tough reforms at an EU summit on July 12.

As the talks entered their final stretch, EU officials expressed surprise at the speed at which talks had moved. “We are quite surprised at how much progress has been made,” said one official in Brussels.

Additional reporting by Anne-Sylvaine Chassany in Paris, Christian Oliver in Brussels and Jim Brunsden in London

This story has been corrected to state that the outline deal calls for adopting a supplementary budget for 2015, projecting a 0.25 per cent primary deficit. The figures on the primary surplus forecasts in the current budget have also been corrected to 4.5 per cent of national output in 2016 and 4.2 per cent in 2017.

Letter in response to this report:

Greece’s financial position is widely misreported / From Ian Ball

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