Published February 16, 2012
Hopes rose on Thursday that Greece had finally done enough to secure a second bailout package worth 130 billion euros ($170 million) after Athens set out extra budget savings demanded by its international lenders.
Time is running out for Greece to secure the new funds to ensure it can avoid a chaotic default when 14.5 billion euros of debt repayments fall due on March 20.
The optimism sliced through a mood of deepening acrimony between Athens and northern states in the 17-member currency union and came only after one proposal to withhold part of the bailout until after Greek elections in April had been dropped.
"We are almost there," one euro zone official said.
"Unless someone really comes up with an idea to undermine the whole deal, it should be approved on Monday," the official said of a regular meeting of the currency bloc's finance ministers in Brussels.
In a further sign of an emerging accord, euro zone sources said national central banks in the currency bloc would this weekend exchange holdings of Greek bonds in the run-up to a private sector debt deal to avoid taking forced losses.
With a go-ahead from the euro zone finance ministers, Greece can formally launch a debt restructuring offer to its private creditors which aims to halve in nominal terms what Greece owes to investors, slashing its debts by 100 billion euros.
"There is no certainty but there is cautious optimism," said Antonis Samaras, leader of Greece's conservative New Democrats and the favourite to win the elections, told reporters.
"Greece has done what it had to do."
A Greek government spokesman confirmed that Athens expected to get the green light from the euro zone on Monday for the debt swap deal with banks and insurers.
The euro rose, European shares recovered losses and safe haven German Bunds hit session lows in response to developments which could help allay the two-year debt crisis.
Athens has provoked rising frustration among some euro zone members at what they see as a trend of Greek political leaders doing the minimum possible at the last moment since the country was first bailed out in 2010. Critics say exactly the same applies to the euro zone's response over the last two years.
Greek government sources said Athens had agreed with the EU and IMF how to fill the 325-million-euro hole in a set of 3.3 billion euros in budget cuts adopted by parliament on Monday as rioters torched and looted buildings in the capital.
Two sources said 100 million euros would come from defence cuts, about 90 million by bringing forward some public sector wage reductions and another 135 million would be taken from the health, labour and interior ministries.
Some points remain unresolved. The Greek government spokesman said the issue of an escrow account to ringfence funds for debt redemption payments had not been agreed, while a German coalition source said more work was needed on how to monitor Greece's efforts to cut spending.
Euro zone finance ministers will also have to consider on Monday the implications of a Greek debt sustainability report prepared by the European Commission, the European Central Bank and the International Monetary Fund which shows Greek debt in 2020 would be around 129 percent of GDP, well above a target of 120 percent set in October.
"The end result ... does not match the parameters of the October agreement," a second euro zone official said.
Several officials have said a target of 125 percent would be acceptable to most euro zone members - and possibly also to the IMF - but measures will be needed to get it somewhat lower.
Ideas include the euro zone cutting the interest on its existing bilateral loans to Greece; increasing its current offer of 130 billion euros of government financing; and asking private investors to agree to bigger losses.
A further option is for the ECB to forego profits on Greek bonds it holds in its portfolio and to re-sell them to euro zone's bailout fund, the European Financial Stability Facility (EFSF), at the same discount it bought them on the market.
Earlier, faced with calls for greater scrutiny of Greece's implementation of the deal, one Greek cabinet member lashed out at the EU for "sheer blackmail".
"Any other intervention, any new demands by our lenders, will mean they are mocking the country," Public Order Minister and former EU commissioner Christos Papoutsis said, echoing an angry outburst by Greece's octogenarian president over German suggestions the country could go bankrupt.
"Some in Europe forget that behind the numbers are people," Papoutsis said. Union leaders called for a new rally on Sunday "to answer all those who want Greece under German occupation".
A German coalition source, speaking after talks with the German finance ministry, said proposals to provide Greece with bridge financing to cover its immediate debt obligations while witholding the rest of the package had been dropped.
An EU source said the proposal had only been mooted as a suggestion and had not won wide support during a conference call of euro zone finance ministers on Wednesday.
Frustration exploded on Wednesday as Greek President Karolos Papoulias, an 82-year-old veteran of the resistance to Nazi occupation of Greece during World War Two, lashed out at German Finance Minister Wolfgang Schaeuble.
Schaeuble, who has likened Greece to a "a bottomless pit", expressed doubt on Wednesday whether Athens would stick to new promises adopted by parliament on Monday as rioters torched and looted buildings across the capital.
"I cannot accept Mr Schaeuble insulting my country," Papoulias riposted. "Who is Mr Schaeuble to insult Greece? Who are the Dutch? Who are the Finnish?"
"Schaeuble Junta", ran a headline in the conservative Eleftheros Typos newspaper, harking back to Greece's painful spell under military rule during the 1960s and 1970s.