Greece nears bank deal to wipe 100b euro debt

Greece is nearer to a deal with bank creditors to wipe out 100 billion euros (NZ$161b) billion) from its huge debt, officials say ahead of talks with its European peers on a new bankruptcy-saving bailout.

Prime Minister Lucas Papademos told his ministers that an agreement with banks could be reached by early next week, Greek news reports said, as the deputy finance minister confirmed talks were at a "satisfactory" point.

"We are at a satisfactory point," Filippos Sachinidis told Real FM radio on Tuesday.

"The goal is to have a voluntary agreement ... that safeguards the viability of Greece's debt," Sachinidis said.

"We are about to finalise shortly the negotiations on private sector involvement," the EU's economic affairs commissioner Olli Rehn said a few hours later at an economic seminar at the European Parliament.

The eurozone in October reached preliminary agreement to accord Greece a 130-billion-euro rescue package to help keep the government afloat until it can return to borrowing on the markets at affordable rates.

However, this package is contingent on Greece reaching a deal with private investors to accept at least a 50 per cent loss on the Greek debt they hold, wiping some 100 billion euros off Athens crushing sovereign debt of over 350 billion euros.

"The net present value of the bonds will be reduced by at least a half and repayment will be pushed back," a source close to the talks told AFP on Tuesday.

Of immediate importance to Greece is maturing debt of 14.43 billion euros that must be repaid on March 20.

"These negotiations are of the highest importance, it's the domino that could start a virtuous cycle in Greece and the rest of the eurozone, in that it gives Athens more room for manoeuvre with its other creditors, the European Union and the International Monetary Fund," the source said.

The discussion on bonds maturing between 2012 and 2020 is being held between Greece and the Institute of International Finance, which represents more than 450 financial institutions worldwide.

Though no definite information has emerged on the duration and interest rate of new bonds to be issued by Greece, sources concur that the process will be covered by British commercial law, satisfying a key bank demand.

Another delicate point, still to be determined, is whether a collective bargaining clause will be imposed on recalcitrant creditors if a majority approves Greece's terms.

Certain hedge funds are currently buying Greek debt on the secondary market at 70 per cent below face value, the source close to the debt rollover said, hoping to benefit from a 50 per cent haircut.

But even with debt relief, Greece has a tough schedule of reforms ahead.

The EU and the International Monetary Fund, which had previously accorded Athens a 110-billion-euro rescue package in May 2010, are sending along with the European Central Bank representatives to Greece next week for a scheduled audit of pending structural reforms.

The auditor team, known locally as the 'troika', has renewed pressure on Greek unions to accept revision to private-sector collective wage agreements to improve the competitiveness of the country's struggling economy.

"There is a feeling that European institutions have concluded their work and are now waiting on Greece (to deliver)", European maritime affairs commissioner Maria Damanaki, who is Greek, told Skai Radio.

"There is fatigue in Greece's relations with the EU," she added. "We cannot want to stay in the euro while failing to make a contribution."

The unions warn that wage cuts enacted so far in the Greek public sector have caused a major recession and further reductions will only exacerbate it.

Prime Minister Papademos, a non-elected technocrat given the reins by a political coalition in November to ratify the latest eurozone bailout, last week warned that the country faces a disorderly default in March without agreement on labour cost cuts.

Greece has so far received 73 billion euros from its original bailout, but needs 89 billion euros from the new eurozone package by February for its debt repayment needs and to help recapitalise Greek banks participating in the bond rollover.

The debt talks will also determine the date of early elections in Greece, which are currently expected to be held between March and April.

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