Greece and its private bondholders drew closer on Friday to a bond swap deal that would prevent the country from sinking into default and ease the eurozone's debilitating debt crisis.
Cash-strapped Greece is fast running out of time as it pushes to wrap up an agreement by Monday paving the way for a fresh injection of aid before €14.5 billion of bond repayments falls due in March.
Bankers and government officials close to the talks say an agreement to cut Greece's debt is in sight and that the two sides may be able to present a joint proposal at a meeting of eurozone finance ministers on Monday (23 January).
"We are very close to wrapping it up," one source close to the negotiations told Reuters on condition of anonymity.
Talks broke down last week
After a breakdown in talks last week over the coupon, or interest payment, that Greece must offer on its new bonds raised fears of a disastrous bankruptcy, the two sides resumed negotiations on Thursday.
Greek Prime Minister Lucas Papademos, Finance Minister Evangelos Venizelos and Charles Dallara, the head of the Institute of International Finance (IIF) representing bondholders, started a new meeting on Friday morning.
Greece needs to have a deal in the bag before funds are doled out from a €130 billion rescue plan that the country's official lenders, the European Union and the International Monetary Fund, drew up in October.
The paperwork involved alone is expected to take weeks, meaning failure to secure a deal soon could put Athens at risk of a damaging default in March, which in turn could jolt the financial system and tip the global economy into recession.
A large chunk of the bond swap must be agreed by noon on Friday and formalised before Monday's meeting of eurozone finance ministers, Venizelos has said.
Greece close to solution, Hungary still a problem
Progress has been hard to come by in the latest round of negotiations, with bankers worried about suffering losses far higher than the 50 percent writedown they were expected to take on the nominal value of their bonds.
Actual losses for investors are expected to be much higher depending on the terms, such as the coupon, being negotiated.
Meanwhile the Commission continued to apply pressure on Hungary over disputed laws passed in January, including one that the Commission says compromises the independence of Hungary's central bank.
EU Economic and Monetary Affairs Commissioner Olli Rehn had a meeting on Friday with Tamas Fellegi, Hungary's minister in charge for aid negotiations with the European Union and International Monetary Fund.
“He (Rehn) reiterated that before we can start formal negotiations on this EU-IMF financing programme, certain preconditions must be met,” Rehn's spokesman Amadeu Altafaj told journalists.
“In particular, he stressed that Hungary must take concrete steps to ensure full independence of its central bank,” Altafaj added.
