Diplomats and economists do not expect the package to resolve Greece's economic problems. That could take up to a decade or more, a bleak picture increasingly apparent to several thousand Greeks who demonstrated yesterday against seemingly endless austerity measures.
The ministers still need to agree new measures to square the numbers, given the ever-worsening state of the Greek economy. But they hope the agreement will help restructure the Athens’ vast debts, put it on a more stable financial footing and keep the country inside the single currency zone.
Senior officials from eurozone finance ministries and the European Central Bank held a conference call yesterday to go over the final details of the €130-billion programme, including a debt sustainability analysis critical to the IMF.
While there is still scepticism in Germany and other countries that Greece will be able to live up to its commitments - including implementing a €3.3 billion of spending cuts and tax increases - officials said momentum was building for approval of the deal.
"At the moment it appears it will go exactly this way," Austrian Finance Minister Maria Fekter said when asked in a TV interview if the package would be approved. "I don't think there is a majority to go a different way because a different way is enormously arduous and costs lots and lots of money."
A eurozone official in contact with junior ministers involved in the Sunday conference call said that, while there were still gaps to be filled, they were not so large that they risked derailing the whole process.
Financing bond swap to keep banking system stable
Greece will have around €100 billion of debt written off via a restructuring involving private-sector holders of Greek government bonds. Banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon, resulting in a real 70% reduction in the value of the assets.
The bond exchange is expected to be launched on 8 March and completed three days later, Athens said. That means a €14.5-billion-bond repayment due on 20 March would be restructured, allowing Greece to avoid default.
The vast majority of the funds in the €130-billion programme will be used to finance the bond swap and to ensure that Greece's banking system remains stable: €30 billion will go to "sweeteners" to get the private sector to sign up to the swap, €23 billion will go to recapitalise Greek banks.
A further €35 billion will allow Greece to finance the buying back of the bonds, and €5.7 billion will go to paying off the interest accrued on the bonds being traded in.
The overall objective is to reduce Greece's debts from 160% of GDP to around 120% by 2020 - the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.
Meeting the target
The focus of discussion in Sunday's conference call - and the issue expected to dominate the finance ministers' meeting on Monday - was what "around 120%" means in practice.
A debt sustainability report delivered to eurozone finance ministers last week showed that under the main scenario, Greek debt will only fall to 129% by 2020.
The IMF has said if the ratio cannot be cut to around 120%, it may not be able to help finance the Greek programme.
US Treasury Secretary Tim Geithner urged the International Monetary Fund to support the programme.
Central banks could help too
The ECB is weighing up whether to allow Greek bonds held in eurozone central banks' investment portfolios to be subject to the same writedowns private investors are set to take, central bank sources told Reuters on Friday.
The central banks hold around €20 billion of Greek bonds in their traditional investment portfolios and the ECB holds about double that amount from its emergency bond-buying programme. It has also signalled it could forego the profits made on the latter at some point.
If the finance ministers do succeed in reaching an agreement today, it will provide immediate relief to Athens and financial markets, which have been kept guessing since the bailout package was announced last October.
Greek Prime Minister Lucas Papademos flew to Brussels for last-minute preparations as about 3,000 demonstrators massed on the capital's central Syntagma square.