Agreement on a 130-billion-euro rescue package with strict conditions would draw a line under months of uncertainty that has shaken the currency bloc, and avert an imminent bankruptcy.

After 11 hours of talks, ministers had found ways to cut Greece’s debt to between 123 and 124 percent of gross domestic product by 2020, but were pressing for more. Negotiators for private bondholders had offered to accept a bigger loss to help plug the funding gap, senior officials said.

A report prepared for ministers by EU, European Central Bank and IMF experts, obtained exclusively by Reuters, said Greece would need extra relief to cut its debts to the official target of 120 percent of GDP by 2020 given the ever-worsening state of its economy.

If Athens did not follow through on economic reforms and savings, its debt could hit 160 percent by that date.

“Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it,” the 9-page confidential report said, laying bare the scale of the task facing Greece.

The euro and Asian stocks faltered, unnerved by the glacial progress although officials in Brussels insisted a deal would be reached.

The euro zone sources said national central banks in the currency bloc could restructure Greek bonds held in their investment portfolios in the same way as private investors, cutting Athens’ debt by another 3.5 percentage points.

If the ECB were to forego profits on its Greek holdings, that would raise another 5.5 percentage points of GDP, the report showed. However, the sources said some euro zone countries were reluctant to pursue this option.

A senior euro zone source said the finance ministers were also negotiating for private sector creditors to take a loss of at least 53.5 percent on the nominal value of Greek bonds under the debt swap, up from a previously agreed 50 percent loss.

An accord would enable Greece to launch a bond swap with private investors to help reduce and restructure Athens’ vast debts, put it on a more stable financial footing and keep it inside the 17-country euro zone.

But diplomats and economists say a deal may only delay a deeper default by a few months. A turnaround could take as much as a decade, a prospect that brought thousands of Greeks onto the streets to protest against austerity measures on Sunday.

Earlier in the day, French Finance Minister Francois Baroin said all the elements were in place for an agreement and Greek Finance Minister Evangelos Venizelos said he expected a deal.

“We expect today the long period of uncertainty – which was in the interest of neither the Greek economy nor the euro zone as a whole – to end,” Venizelos said in a statement.

Dutch Finance Minister Jan Kees de Jager, the most outspoken of Greece’s creditors, said the Netherlands could not approve the rescue package until Greece had met all its obligations. But the chairman of the Eurogroup, Jean-Claude Juncker, said Athens had met all the prior conditions demanded of it.

Finland, another stern creditor, signed a side-deal with Greece for Greek banks to provide collateral in cash and highly rated assets in return for Finnish loan guarantees, removing one long-running obstacle.

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Euro zone crisis in graphics r.reuters.com/hyb65p

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DOUBTS OVER COMMITMENT

Skeptics question whether a new Greek government will stick to the deeply unpopular program after elections due in April, and believe Athens could again fall behind in implementation, prompting exasperated lenders to pull the plug once the euro zone has stronger financial firewalls in place.

While there are doubts in Germany and other countries that Greece will be able to meet its commitments, including implementing 3.3 billion euros of spending cuts and tax increases, officials said they were closing in on a deal.

Greek Prime Minister Lucas Papademos, International Monetary Fund Managing Director Christine Lagarde and ECB President Mario Draghi were all attending the Brussels talks in a sign they were likely to be decisive.

Under one crucial element of the package, Greece will have around 100 billion euros 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 percent reduction in the value of the assets.

The bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and ensure Greece’s banking system remains stable: 30 billion euros will go to “sweeteners” to get the private sector to sign up to the swap, 23 billion will go to recapitalize 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. Next to nothing will go directly to help the Greek economy.

Those numbers could change as talks dragged on through the night given the scramble to meet the overall objective of reducing Greece’s debts from 160 percent of GDP to around 120 by 2020.

MEETING THE TARGET

The debt sustainability report delivered to ministers last week showed that without further measures Greek debt would only fall to 129 percent by 2020.

The IMF has said if the ratio cannot be cut to near 120 percent, it may not be able to help finance the bailout.

A number of measures, including restructuring the accrued interest portion, reducing the “sweeteners” and having euro zone central banks take part in the debt swap were being considered to move the figure closer to 120 percent.

There are also discussions about marginally lowering the interest rate on 110 billion euros of bilateral loans already made to Greece in May 2010, the first package of support.

The biggest difference would be made by involvement of the ECB and national euro zone central banks.

A deal would provide immediate relief to Athens and financial markets but no one is pretending it will end Greece’s problems. Figures last week showed its economy shrank 7 percent year-on-year in the last quarter of 2011, much more than expected, with further cuts likely to make matters worse.

The troika of European Commission, ECB and IMF, responsible for monitoring Greece’s reform progress, carries out quarterly reviews and could decide Athens is not meeting its commitments at any one of them.

(Additional reporting by Julien Toyer, Annika Breidthardt, Robin Emmott in Brussels, Daniel Flynn in Paris, Terri Kinnunen in Helsinki,; writing by Mike Peacock and Paul Taylor.)

Diplomats and economists say they do not expect the package
to resolve Greece’s economic problems. That could take a decade
or more, a bleak prospect that brought thousands of Greeks onto
the streets to protest austerity measures again on Sunday.

The ministers need to agree new measures to square the
numbers, given the ever-worsening state of the Greek economy.
But they say an agreement on Monday will help restructure the
country’s vast debts, put it on a more stable financial footing
and keep it inside the 17-country single currency zone.

Senior officials from euro zone finance ministries and the
European Central Bank held a conference call on Sunday to go
over the final details of the 130-billion-euro
($171-billion)programme, including a debt sustainability
analysis critical to the International Monetary Fund.

While there is scepticism in Germany and other countries
that Greece will be able to live up to its commitments -
including implementing 3.3 billion euros of spending cuts and
tax increases – officials said momentum was building for
approval of the deal.

French Finance Minister Francois Baroin said all the
elements were in place to reach an agreement.

“It cannot wait any longer … Greece has debt payments in
March and could find itself in bankruptcy, something which
France has been trying to avoid for the last 18 months,” he told
Europe 1 radio on Monday.

Finnish Finance Minister Jutta Urpilainen said Greece had
done all that had been asked of it.

“There are many open details … A big issue is that we have
to get Greece’s debt on a level that is sustainable and enables
Greece to survive,” she told reporters in Helsinki.

A euro zone official in contact with junior ministers
involved in the Sunday conference call said the financing gaps
were not so large that they risked derailing the whole process.

“I don’t see anybody wanting to be responsible for pulling
the plug on the deal at this late stage,” he said.

“The gut feeling is that this is going to go through -
everyone feels the pressure this time to deliver,” he said,
indicating that the Netherlands, Finland and Germany, which have
been the most critical of Athens’ ability to commit, looked
likely to come on board if the financing gaps could be closed.

GREEK ANGER UNABATED

Several thousand Greeks demonstrated on Sunday against the
austerity measures to reduce the country’s debt, although the
numbers were much lower than earlier protests.

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.

Riot police shielded the national assembly to prevent a
repeat of riots a week ago when masked youths torched buildings
and looted shops across Athens.

Under one crucial element of the deal, Greece will have
around 100 billion euros 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 percent reduction in the value of the assets.

The bond exchange is expected to launch on March 8 and
complete three days later, Athens said on Saturday. That means a
14.5-billion-euro bond repayment due on March 20 would be
restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro
programme will be used to finance the bond swap and to ensure
that Greece’s banking system remains stable: 30 billion euros
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
percent of GDP to around 120 percent 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 Monday’s finance ministers’ meeting will be
what “around 120 percent” means in practice.

A debt sustainability report delivered to euro zone finance
ministers last week showed that under the main scenario, Greek
debt will only fall to 129 percent by 2020.

The IMF has said if the ratio cannot be cut to around 120
percent, it may not be able to help finance the Greek programme.

U.S. Treasury Secretary Tim Geithner urged the International
Monetary Fund to support the programme.

“This is a very strong and very difficult package of
reforms, deserving of support of the international community and
the IMF,” Geithner said in a statement on Sunday.

As well as working to get the number down, there are moves
to convince members of the troika that a debt level of 123-125
percent in 2020 would be sustainable.

“If we can get it down to 123 or 124 percent, I think
everyone’s going to be okay with that,” the euro zone official
said after the Sunday conference call. “Everyone will find a way
to tweak the numbers.”

A number of measures, including restructuring the accrued
interest portion or reducing the “sweeteners”, are being
considered to move the figure closer to 120, a euro zone
official familiar with the negotiations said.

There are also discussions about marginally lowering the
interest rate on 110 billion euros of bilateral loans already
made to Greece in May 2010 – the first package of support – to
lighten the financing burden on Athens.

Central banks could help too.

The ECB is weighing up whether to allow Greek bonds held in
euro zone 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 euros 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, it will provide immediate relief to Athens and
financial markets, which have been kept guessing since the
bailout package was announced last October.

But no one is pretending it will end Greece’s problems.
Figures last week showed its economy shrank 7 percent
year-on-year in the last quarter of 2011, much more than
expected, with further cuts likely to make matters worse.

The troika, responsible for monitoring Greece’s reform
progress, carries out quarterly reviews, while the European
Commission will soon have dozens more monitors on the ground.

Already there is concern that at any one of those reviews of
the new programme – if it is approved on Monday – Greece will be
found to be behind, especially if GDP continues to slump.

That will again raise the threat the country will have to
default if it cannot meet its obligations, and invite questions
about its ability to remain in the euro zone.

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 on Sunday 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 agreement on Monday will help restructure the
country’s vast debts, put it on a more stable financial footing
and keep it inside the single currency zone.

Senior officials from euro zone finance ministries and the
European Central Bank held a conference call on Sunday to go
over the final details of the 130-billion-euro 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 3.3 billion euros 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 on Sunday when asked
in a TV interview if the package would be approved. “I don’t
tink there is a majority to go a different way because a
different way is enormously arduous and costs lots and lots of
money.”

A euro zone 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.

“I don’t see anybody wanting to be responsible for pulling
the plug on the deal at this late stage,” he said.

“The gut feeling is that this is going to go through -
everyone feels the pressure this time to deliver,” he said,
indicating that the Netherlands, Finland and Germany, which have
been the most critical of Athens’ ability to commit, looked
likely to come on board if the financing gaps could be closed.

GREEK ANGER UNABATED

Several thousand Greeks demonstrated on Sunday against
punishing austerity measures to reduce their country’s debt, on
the eve of the make-or-break talks.

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.

Riot police shielded the national assembly, braced against a
repeat of riots a week ago that saw buildings torched and looted
across downtown Athens after a much larger rally involving tens
of thousands.

Under one crucial element of the deal, Greece will have
around 100 billion euros 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 percent reduction in the value of the assets.

The bond exchange is expected to launch on March 8 and
complete three days later, Athens said on Saturday. That means a
14.5-billion-euro bond repayment due on March 20 would be
restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro
programme will be used to finance the bond swap and to ensure
that Greece’s banking system remains stable: 30 billion euros
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
percent of GDP to around 120 percent 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 percent” means in practice.

A debt sustainability report delivered to euro zone finance
ministers last week showed that under the main scenario, Greek
debt will only fall to 129 percent by 2020.

The IMF has said if the ratio cannot be cut to around 120
percent, it may not be able to help finance the Greek programme.

U.S. Treasury Secretary Tim Geithner urged the International
Monetary Fund to support the programme.

“This is a very strong and very difficult package of
reforms, deserving of support of the international community and
the IMF,” Geithner said in a statement on Sunday.

As well as working to get the number down, there are moves
to convince members of the troika that a debt level of 123-125
percent in 2020 would still be sustainable.

“If we can get it down to 123 or 124 percent, I think
everyone’s going to be okay with that,” the euro zone official
said after the Sunday conference call. “Everyone will find a way
to tweak the numbers.”

A number of measures, including restructuring the accrued
interest portion or reducing the “sweeteners”, are being
considered to move the 129 figure closer to 120, a euro zone
official familiar with the negotiations said.

There are also discussions about marginally lowering the
interest rate on 110 billion euros of bilateral loans already
made to Greece in May 2010 – the first package of support – to
lighten the financing burden on Athens.

Central banks could help too.

The ECB is weighing up whether to allow Greek bonds held in
euro zone 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 euros 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.

“All the discussions I will have … until Sunday night will
try to move the figure nearer to the target,” Luxembourg’s
Jean-Claude Juncker, who will chair Monday’s finance ministers’
meeting, said on Friday, referring to the 120 figure.

If the finance ministers do succeed in reaching an agreement
on Monday, it will provide immediate relief to Athens and
financial markets, which have been kept guessing since the
bailout package was announced last October.

But no one is pretending it will end Greece’s problems.
Figures last week showed its economy shrank 7 percent
year-on-year in the last quarter of 2011, much more than
expected, with further cuts likely to make matters worse.

The troika, which is responsible for monitoring Greece’s
reform progress, carries out quarterly reviews, while the
European Commission will soon have dozens more monitors on the
ground in Athens as part of the second package.

Already there is concern that at any one of those reviews of
the new programme – if it is approved on Monday – Greece will be
found to be behind, especially if GDP continues to slump.

That will again raise the threat the country will have to
default if it cannot meet its obligations, and invite questions
about its ability to remain in the euro zone.

Diplomats and economists do not expect the package to resolve Greece’s economic problems: that could take up to a decade or more.

But they hope agreement on Monday will help restructure the country’s vast debts, put it on a more stable financial footing and keep it inside the single currency zone.

Senior officials from euro zone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the 130-billion-euro programme, including a debt sustainability analysis critical to the IMF.

While there is still scepticism in some countries that Greece will be able to live up to its commitments – including implementing 3.3 billion euros of spending cuts and tax increases – officials said momentum was behind approving the deal and that that line was likely to prevail on Monday.

“At the moment it appears it will go exactly this way,” Austria’s finance minister, Maria Fekter, said on Sunday 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 euro zone official in contact with junior ministers involved in the conference call on Sunday said that while there were still gaps to be filled in some of the numbers, they were not so large that they risked derailing the agreement.

“I don’t see anybody wanting to be responsible for pulling the plug on the deal at this late stage,” he said.

“The gut feeling is that this is going to go through – everyone feels the pressure this time to deliver,” he said, indicating that the Netherlands, Finland and Germany, who have been the most critical of Athens’ ability to commit, looked likely to come on board if the financing gaps could be closed.

DEBT SUSTAINABLE?

Under the deal, Greece will have around 100 billion euros of its obligations written off via a debt restructuring involving private-sector holders of Greek government bonds.

The private sector – mostly banks and insurance companies – will swap bonds they hold for longer-dated Greek securities that pay a lower coupon, resulting in a real 70 percent reduction in the value of the assets.

The bond exchange is expected to launch on March 8 and complete three days later, Greece said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro programme will be used to finance the bond swap and to ensure that Greece’s banking system remains stable: 30 billion euros will go to “sweeteners” to get the private sector to sign up to the swap, and 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 percent of GDP to around 120 percent by 2020 – the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.

The focus of discussion in Sunday’s conference call – and the issue expected to dominate the finance ministers’ meeting on Monday – is what “around 120 percent” means in practice.

A debt sustainability report delivered to euro zone finance ministers last week showed that under the main scenario, Greek debt will only fall to 129 percent by 2020, and that’s if Greece runs a primary surplus next year, one official said.

A number of measures, including restructuring the accrued interest portion or reducing the “sweeteners”, are being considered to move the 129 figure closer to 120, a euro zone official familiar with the negotiations said.

As well as working to get the number down, there are moves to convince members of the troika that a debt level of 123-125 percent in 2020 would still be sustainable.

“If we can get it down to 123 or 124 percent, I think everyone’s going to be okay with that,” the euro zone official following the Sunday conference call said. “Everyone will find a way to tweak the numbers.”

There are also discussions about marginally lowering the interest rate on 110 billion euros of bilateral loans already made to Greece in May 2010 – the first package of support – to lighten the financing burden on Athens.

“We are far away from the objective,” Luxembourg’s Jean-Claude Juncker, who will chair Monday’s finance ministers’ meeting, said on Friday, referring to the 120 figure.

“All the discussions I will have… until Sunday night will try to move the figure nearer to the target.”

LONGER-TERM PROBLEMS

If the finance ministers do succeed in reaching an agreement on Monday, it will provide immediate relief to Athens and financial markets, which have been kept guessing since the bailout package was announced last October.

But no one is pretending that it will be the end of problems for Greece. Figures last week showed that Greek gross domestic product contracted an annualised 7 percent in the last quarter of 2011, much more than expected.

If the country is to be put on a long-term sustainable path, it needs to return to growth rapidly. But the structural and labour market reforms so far introduced have done little to improve that prospect and unemployment is rising rapidly.

The troika, which is responsible for monitoring Greece’s reform progress, carries out quarterly reviews, while the European Commission will soon have dozens more monitors on the ground in Athens as part of the second package.

Already there is concern that at the first review of the new programme – if it is approved on Monday – Greece will be found to be behind, especially if GDP continues to slump.

That will again raise the threat of the country having to default if it cannot meet its obligations, and invite questions about its ability to remain in the euro zone.

And even Greece can meet its targets, there will still be concerns about Portugal, Spain and Italy, none of which is out of the woods yet.

(Writing by Luke Baker; Editing by David Cowell)

Diplomats and economists do not expect the package to
resolve Greece’s economic problems: that could take up to a
decade or more.

But they hope agreement on Monday will help restructure the
country’s vast debts, put it on a more stable financial footing
and keep it inside the single currency zone.

Senior officials from euro zone finance ministries and the
European Central Bank held a conference call on Sunday to go
over the final details of the 130-billion-euro programme,
including a debt sustainability analysis critical to the IMF.

While there is still scepticism in some countries that
Greece will be able to live up to its commitments – including
implementing 3.3 billion euros of spending cuts and tax
increases – officials said momentum was behind approving the
deal and that that line was likely to prevail on Monday.

“At the moment it appears it will go exactly this way,”
Austria’s finance minister, Maria Fekter, said on Sunday 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 euro zone official in contact with junior ministers
involved in the conference call on Sunday said that while there
were still gaps to be filled in some of the numbers, they were
not so large that they risked derailing the agreement.

“I don’t see anybody wanting to be responsible for pulling
the plug on the deal at this late stage,” he said.

“The gut feeling is that this is going to go through -
everyone feels the pressure this time to deliver,” he said,
indicating that the Netherlands, Finland and Germany, who have
been the most critical of Athens’ ability to commit, looked
likely to come on board if the financing gaps could be closed.

DEBT SUSTAINABLE?

Under the deal, Greece will have around 100 billion euros of
its obligations written off via a debt restructuring involving
private-sector holders of Greek government bonds.

The private sector – mostly banks and insurance companies -
will swap bonds they hold for longer-dated Greek securities that
pay a lower coupon, resulting in a real 70 percent reduction in
the value of the assets.

The bond exchange is expected to launch on March 8 and
complete three days later, Greece said on Saturday. That means a
14.5-billion-euro bond repayment due on March 20 would be
restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro
programme will be used to finance the bond swap and to ensure
that Greece’s banking system remains stable: 30 billion euros
will go to “sweeteners” to get the private sector to sign up to
the swap, and 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
percent of GDP to around 120 percent by 2020 – the figure and
timeframe that the IMF, ECB and the European Commission,
together known as the troika, have established as sustainable.

The focus of discussion in Sunday’s conference call – and
the issue expected to dominate the finance ministers’ meeting on
Monday – is what “around 120 percent” means in practice.

A debt sustainability report delivered to euro zone finance
ministers last week showed that under the main scenario, Greek
debt will only fall to 129 percent by 2020, and that’s if Greece
runs a primary surplus next year, one official said.

A number of measures, including restructuring the accrued
interest portion or reducing the “sweeteners”, are being
considered to move the 129 figure closer to 120, a euro zone
official familiar with the negotiations said.

As well as working to get the number down, there are moves
to convince members of the troika that a debt level of 123-125
percent in 2020 would still be sustainable.

“If we can get it down to 123 or 124 percent, I think
everyone’s going to be okay with that,” the euro zone official
following the Sunday conference call said. “Everyone will find a
way to tweak the numbers.”

There are also discussions about marginally lowering the
interest rate on 110 billion euros of bilateral loans already
made to Greece in May 2010 – the first package of support – to
lighten the financing burden on Athens.

“We are far away from the objective,” Luxembourg’s
Jean-Claude Juncker, who will chair Monday’s finance ministers’
meeting, said on Friday, referring to the 120 figure.

“All the discussions I will have… until Sunday night will
try to move the figure nearer to the target.”

LONGER-TERM PROBLEMS

If the finance ministers do succeed in reaching an agreement
on Monday, it will provide immediate relief to Athens and
financial markets, which have been kept guessing since the
bailout package was announced last October.

But no one is pretending that it will be the end of problems
for Greece. Figures last week showed that Greek gross domestic
product contracted an annualised 7 percent in the last quarter
of 2011, much more than expected.

If the country is to be put on a long-term sustainable path,
it needs to return to growth rapidly. But the structural and
labour market reforms so far introduced have done little to
improve that prospect and unemployment is rising rapidly.

The troika, which is responsible for monitoring Greece’s
reform progress, carries out quarterly reviews, while the
European Commission will soon have dozens more monitors on the
ground in Athens as part of the second package.

Already there is concern that at the first review of the new
programme – if it is approved on Monday – Greece will be found
to be behind, especially if GDP continues to slump.

That will again raise the threat of the country having to
default if it cannot meet its obligations, and invite questions
about its ability to remain in the euro zone.

And even Greece can meet its targets, there will still be
concerns about Portugal, Spain and Italy, none of which is out
of the woods yet.

Delays could possibly last until after the country holds elections expected in April, they said.

While most of the elements of the package, which will total 130 billion euros, are in place, euro zone finance ministers are not satisfied that Greece’s political leaders are sufficiently committed to the deal, which requires Athens to make further spending cuts and introduce deeply unpopular labour reforms.

It is also not clear that Greece’s debt-to-GDP ratio, which currently stands at around 160 percent, will be cut to 120 percent by 2020 via the agreement, as demanded by the ‘troika’ of the European Commission, IMF and European Central Bank.

“There are proposals to delay the Greek package or to split it, so that an immediate default is avoided, but not everything is committed to,” one official briefed on preparations for a euro zone finance ministers call later in the day told Reuters.

“They’ll discuss the options,” he said, adding: “There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they’ve held elections.”

The euro slid to its lowest in more than a week against the dollar in response to the Reuters report and safe haven German Bund futures rose to session highs.

Greece’s conservative party leader Antonis Samaras, widely tipped as the country’s next prime minister, pledged in writing that if elected he would stick to an agreed programme of welfare and job cuts – a commitment demanded by euro zone ministers before they would agree to the new bailout.

One senior euro zone diplomat said the pressure being applied on Athens to meet its commitments seemed to be working, and suggested that as long as that held, more radical proposals for reexamining the second package may not be necessary.

“With every small piece of news that we get from Athens, the situation is becoming better. Whether it will hold all the way through, we can’t know. They’ll have to discuss that tonight and come back to it on Monday, I imagine.”

Germany, Finland and the Netherlands are the countries pushing to delay the package, two other officials said, with Germany the most adamant and suggesting that final approval should only be granted after new elections are held.

Under the proposal, a debt swap agreement between Greece and private sector holders of Greek bonds, which aims to cut Athens’ debt burden by 100 billion euros via the private sector taking a nominal 50 percent loss, could go ahead in the coming weeks, with the process beginning in around a week’s time.

If successfully completed, the swap would allow Greece to avoid missing a 14.5 billion euro bond redemption payment on March 20. If Athens misses that payment, or the terms of the payment are not altered, it will be in default.

Around 30 billion euros of the 130 billion euro package is made up of “sweeteners” to be paid to private-sector investors to encourage them to take part in the swap.

That portion of the package would have to be raised and paid out, and there would also need to be support of around 30 billion euros to recapitalise Greek banks, but the bulk of the funds would not be signed off on.

Data from Athens on Tuesday showed the economy shrank 7.0 percent in the fourth quarter of 2011 on an annualised basis, making it all the harder for Greece to meet the target. One official estimated that Greece’s debt-to-GDP ratio may only fall to 140 percent by 2020 given the latest figures.

Euro zone finance ministers will hold a conference call from 4 p.m. British time to discuss how to proceed. The call replaces a face-to-face meeting, which was cancelled late on Tuesday because Greece had not provided sufficient commitments from its side and not all the paperwork was in place.

Asked whether the package could be split, a spokesman for the European Commission said it was not decided.

“Up until now in the discussions, this has always been treated as an entire package,” Amadeu Altafaj, spokesman on economic and monetary affairs told reporters, adding specifically on the private-sector portion:

“Up until now, that’s never been separated out. Now what will happen tonight, I don’t know, I can’t preempt that. But that’s certainly the logic we’ve been following so far.”

NOT UNTIL APRIL

One major problem with splitting the package is whether private holders of Greek bonds would be willing to sign up to a swap if Greece’s financing – which makes up the bulk of the second package – is not in place, since that would mean the state might not be able to meet future bond payments.

As a result, one euro zone source said it was possible that the entire second package – the private sector portion and the remainder – could be delayed until after Greek elections, when everyone hopes for greater clarity and commitment.

“This would mean we have to pay the 14.5 billion euros on March 20, which would be a total waste,” said the euro zone source, who took part in discussions among deputy heads of euro zone finance ministries on Tuesday.

“But there is still money left from the first programme so we could do it,” the source said, referring to Greece’s first, 110 billion euro bailout programme, agreed in May 2010. “This would mean that the talks on the second programme, including PSI (private sector involvement), which is part of the package, would be moved until there is a new Greek government in place.”

The frustration expressed by Germany, the Netherlands and others – reflected in the proposal to delay the rescue package – is in part designed to put political pressure on Athens. But officials say it is also genuine and a sign that patience is wearing thin after two years of trying to sort out Greece.

For now, the central aim of euro zone finance ministers remains to push ahead with the second package as agreed last October – which would mean signing off on PSI in the coming week, possibly at a Eurogroup meeting set for Monday.

(Additional reporting by John O’Donnell in Brussels and Martin Santa in Bratislava, writing by Luke Baker, editing by Mike Peacock)

Delays could possibly last until after the country holds elections expected in April, they said

While most of the elements of the package, which will total 130 billion euros, are in place, euro zone finance ministers are not satisfied that Greece’s political leaders are sufficiently committed to the deal, which requires Athens to make further spending cuts and introduce deeply unpopular labor reforms.

It is also not clear that Greece’s debt-to-GDP ratio, which currently stands at around 160 percent, will be cut to 120 percent by 2020 via the agreement, as demanded by the ‘troika’ of the European Commission, IMF and European Central Bank.

“There are proposals to delay the Greek package or to split it, so that an immediate default is avoided, but not everything is committed to,” one official briefed on preparations for a euro zone finance ministers call later in the day told Reuters.

“They’ll discuss the options,” he said, adding: “There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they’ve held elections.”

Germany, Finland and the Netherlands are the countries pushing to delay the package, two other officials said, with Germany the most adamant and suggesting that final approval should only be granted after new elections are held.

Under the proposal, a debt swap agreement between Greece and private sector holders of Greek bonds, which aims to cut Athens’ debt burden by 100 billion euros via the private sector taking a nominal 50 percent loss, could go ahead in the coming weeks, with the process beginning in around a week’s time.

If successfully completed, the swap would allow Greece to avoid missing a 14.5 billion euro bond redemption payment on March 20. If Athens misses that payment, or the terms of the payment are not altered, it will be in default.

Around 30 billion euros of the 130 billion euro package is made up of “sweetners” to be paid to private-sector investors to encourage them to take part in the swap.

That portion of the package would have to be raised and paid out, and there would also need to be support of around 30 billion euros to recapitalize Greek banks, but the bulk of the funds would not be signed off on.

Data from Athens on Tuesday showed the economy shrank 7.0 percent in the fourth quarter of 2011 on an annualized basis, making it all the harder for Greece to meet the target. One official estimated that Greece’s debt-to-GDP ratio may only fall to 140 percent by 2020 given the latest figures.

Euro zone finance ministers will hold a conference call from 1600 GMT to discuss how to proceed. The call replaces a face-to-face meeting, which was cancelled late on Tuesday because Greece had not provided sufficient commitments from its side and not all the paperwork was in place.

Asked whether the package could be split, a spokesman for the European Commission said it was not decided.

“Up until now in the discussions, this has always been treated as an entire package,” Amadeu Altafaj, spokesman on economic and monetary affairs told reporters, adding specifically on the private-sector portion:

“Up until now, that’s never been separated out. Now what will happen tonight, I don’t know, I can’t preempt that. But that’s certainly the logic we’ve been following so far.”

NOT UNTIL APRIL

One major problem with splitting the package is whether private holders of Greek bonds would be willing to sign up to a swap if Greece’s financing – which makes up the bulk of the second package – is not in place, since that would mean the state might not be able to meet future bond payments.

As a result, one euro zone source said it was possible that the entire second package – the private sector portion and the remainder – could be delayed until after Greek elections, when everyone hopes for greater clarity and commitment.

“This would mean we have to pay the 14.5 billion euros on March 20, which would be a total waste,” said the euro zone source, who took part in discussions among deputy heads of euro zone finance ministries on Tuesday.

“But there is still money left from the first program so we could do it,” they said, referring to Greece’s first, 110 billion euro bailout program, agreed in May 2010. “This would mean that the talks on the second program, including PSI (private sector involvement), which is part of the package, would be moved until there is a new Greek government in place.”

The frustration expressed by Germany, the Netherlands and others – reflected in the proposal to delay the rescue package – is in part designed to put political pressure on Athens. But officials say it is also genuine and a sign that patience is wearing thin after two years of trying to sort out Greece.

For now, the central aim of euro zone finance ministers remains to push ahead with the second package as agreed last October – which would mean signing off on PSI in the coming week, possibly at a Eurogroup meeting set for Monday.

(Additional reporting by John O’Donnell in Brussels and Martin Santa in Bratislava, writing by Luke Baker)

A day before euro zone finance ministers had been due to
meet in Brussels to consider the bailout, the man most likely to
be Greece’s next prime minister had yet to sign a commitment to
implement the austerity measures demanded by the EU and IMF.

Likewise, the cabinet had yet to fill a 325 million euro
($427 million) gap in the budget cuts promised for 2012, even
though the ministers of the Eurogroup had told Athens that they
needed a complete package of promises and signed undertakings.

With the European Union’s patience with Greece close to
breaking point, Eurogroup Chairman Jean-Claude Juncker
downgraded Wednesday’s talks to a telephone conference call.

That appeared to kill any chance that the Eurogroup would
approve on Wednesday the 130 billion euro bailout, funds from
which Greece must start getting by next month to avoid a messy
bankruptcy. It is due to hold a regular meeting on Feb. 20.

Juncker said he was awaiting written undertakings from Greek
party leaders on pushing through with the austerity package of
pay, pension and job cuts – which parliament passed early on
Monday as rioters wrecked buildings across central Athens.

“I did not yet receive the required political assurances
from the leaders of the Greek coalition parties on the
implementation of the programme,” he said in a statement.

A source familiar with the bailout negotiations said
conservative leader Antonis Samaras had yet to sign the
commitment to implement the deeply unpopular austerity package,
a condition set by the EU/IMF lenders who are weary of broken
Greek promises on economic reform and budget cuts.

“So far Samaras has not given a letter of commitment and
this is a problem,” the source told Reuters on condition of
anonymity. The New Democracy party of Samaras declined comment.

A government source said Samaras would provide the
undertaking on Wednesday morning. If he does, he will be
sticking to a pattern among Greek politicians of working right
up to deadlines or beyond, infuriating EU leaders.

This practice of keeping everyone in suspense until the last
minute appears to have cost Greece the full Eurogroup meeting.
Time is running out as it faces a chaotic default if it cannot
meet 14.5 billion euros in debt repayments due on March 20.

The MAN MOST LIKELY

With New Democracy well ahead in opinion polls, Samaras is
frontrunner to become the next prime minister. When parliament
debated the austerity package he indicated that he would try to
renegotiate the terms of the bailout, further sowing doubt in
the minds of European leaders.

A source at the PASOK socialist party, the other coalition
party, said its leader George Papandreou had already provided a
signed undertaking.

Greece’s cabinet negotiated late into Tuesday evening on
solving the other hitch with Brussels, the 325 million euro hole
in the 3.3 billion euros of extra budget cuts which the
government has promised for this year.

All this was played out as Greece’s downward economic spiral
accelerated. Data on Tuesday showed that economy shrank seven
percent in the fourth quarter of last year, even more than the
five percent contraction of the third quarter.

Greece is now in its fifth year of recession and is well on
its way to suffering one of the biggest slumps of modern
history. Gross domestic product has contracted 16 percent from
its peak and the austerity will only make that worse.

Prime Minister Lucas Papademos has warned that failure to
back the bailout would consign Greece to economic catastrophe.

But with many Greeks suffering huge cuts in their living
standards and young people burning and wrecking almost 100
Athens buildings in one night on Sunday, some people believe the
catastrophe is already underway.

“On the current path – which is not sustainable in my view -
we may very well see Greek GDP go down 25-30 percent, which
would be historically unprecedented. It’s a disastrous crisis
for them,” said Uri Dadush, at the Carnegie Endowment think tank
in Washington.

That would put Greece in the same league as the United
States, where the economy shrank 29 percent during the Great
Depression.

“They’re suffering. It’s nasty,” said Mark Weisbrot,
co-director of the Center for Economic and Policy Research,
another in Washington think tank.

“If you could say with a reasonable probability that the
worst was over, then that would be different. But you can’t say
that. They’re in for a long nightmare.”

Greece needs a second package of financial aid to save it from disorderly default.

But its political leaders have so far failed to deliver sufficient commitments to economic reform, Eurogroup President Jean-Claude Juncker said in a statement on Tuesday.

“It has appeared that further technical work between Greece and the troika is needed in a number of areas, including the closure of the fiscal gap of 325 million euros in 2012 and the debt sustainability analysis,” Juncker said in a statement.

“Furthermore, I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the program,” he said.

The delay, which is likely to worry investors who had expected a deal on Wednesday, is the latest setback in difficult negotiations to prop up Greece’s finances.

After months of negotiations, private creditors agreed to take losses on their Greek bonds but only in conjunction with a rescue package for Greece.

But the Greek parliament’s approval of an austerity bill on Monday resulted in violence throughout the country, and opposition politicians – who might end up in power after elections in April – have said they may renegotiate how reform is implemented.

The Greek government is attempting to find 325 million euros ($427 million) in budget cuts to satisfy euro zone finance ministers.

Eurozone ministers had been expected to meet in person on Wednesday in Brussels to give their initial approval to the package, as well as agree to launch a bond swap with private creditors to reduce Athens’ debt burden.

The delay pushes back a decision until at least Monday, February 20, when ministers have scheduled their next meeting.

The further technical work remaining needs to be carried out by the troika that monitors Greece, consisting of the European Central Bank, European Commission and International Monetary Fund.

The savings of 325 million euros are part of reforms that will involve 3.3 billion euros of cuts in wages, pensions and jobs endorsed by parliament on Sunday. During the vote rioters torched buildings in Athens and fought running battles with police.

A written commitment from Greece’s main political leaders is crucial to winning the blessing of Germany and others for a 130 billion euro package of aid that Athens needs to be in place in time for a 14.5 billion euro bond redemption repayment on March 20.

Without it, euro zone countries will not launch a program of aid, which is also needed to pay the private owners of Greek bonds to encourage them to participate in a bond swap to cut Athens’ debt burden.

Frustration with Greece peaked in recent weeks as politicians began preparing for national elections that could come in April.

This especially worries countries such as Germany, which fears that Greece’s leaders will abandon the pledges they have made to reform the economy as soon as they have received the financial aid they need.

(Reporting By John O’Donnell.; Additional reporting by Luke Baker and Martin Bratislava.; Editing By Sebastian Moffett and Myra MacDonald)

Ministers in the Eurogroup had been expected to gather in Brussels on Wednesday for a meeting which, if all had gone to plan, would have approved the 130 billion euro rescue and save Greece from a messy bankruptcy next month.

However, with the European Union’s patience with Greece close to breaking point, Eurogroup Chairman Jean-Claude Juncker said the ministers would hold only a telephone conference call before a regular meeting already scheduled for February 20.

Juncker said he was still awaiting written undertakings from Greek party leaders on pushing through with the austerity package of pay, pension and job cuts – which parliament passed on Monday as rioters torched dozens of buildings in central Athens.

“I did not yet receive the required political assurances from the leaders of the Greek coalition parties on the implementation of the programme,” he said in a statement.

Juncker also said the funding hole required more talks with the “troika” of Greece’s EU and IMF lenders.

“It has appeared that further technical work between Greece and the troika is needed in a number of areas, including the closure of the fiscal gap of 325 million euros in 2012 and the debt sustainability analysis,” he added.

Critics say the drastic belt-tightening is only deepening Greece’s recession, now in its fifth year. With an election expected in April, the EU wants any politician who might take power afterwards to promise to stick with the programme.

The frontrunner to become prime minister, conservative New Democracy leader Antonis Samaras, indicated during Sunday’s parliamentary debate that he would try to renegotiate the terms of the bailout, further sowing doubt in the minds of European leaders who say they are tired of broken promises.

“NOTHING CAN BE REVERSED”

However, a senior New Democracy official, who declined to be named, said the fact that the party had backed the package in parliament proved its commitment.

“There is no greater commitment than our vote regarding the implementation of the measures,” he told Reuters.

“None of the measures we voted for can be reversed. But we will discuss with our partners measures that don’t bear fruit, in order to meet our targets faster,” he said. “The only thing we’ve said is that growth should be our priority.”

The cabinet of Prime Minister Lucas Papademos met in Athens to fill the 325 million euro hole in its overall package of 3.3 billion euros in extra budget cuts this year which it must spell out in detail to get the new rescue from the EU and IMF.

Greek politicians have sailed past a series of deadlines in committing themselves to the budget cuts which provoked the most serious violence in Athens in years. Every time they appear finally to have settled everything, new problems or disputes surface, angering the EU.

On Tuesday, the cabinet was considering further cuts to defence spending and public sector salaries, government sources said.

The EU and International Monetary Fund want Greece to account for every cent of budget cuts before they approve the rescue, which includes a bond swap cutting the real value of private-sector investors’ bond holdings by some 70 percent.

Two government sources, who declined to be named, said the cabinet was considering trimming 125 million euros from the defence budget, already cut by 300 million in the austerity bill adopted by Sunday. A further 200 million would come by bringing forward public sector salary cuts.

“That is what is being discussed but there is no final decision yet,” a government official told Reuters. The sources said ministers were also looking at cutting funding for local municipalities.

Athens needs the funds to avoid a disorderly default when 14.5 billion euros in debt repayments fall due on March 20.

But the punishing austerity measures are fuelling social turmoil in Greece, where unemployment hit a high of 20.9 percent in November and half of young Greeks are jobless.

DIRE DATA

The country posted yet more dire economic figures on Tuesday, with flash estimates showing GDP shrank 7 percent in the fourth quarter of 2011 after a 5 percent contraction in Q3.

Earlier, there had been some signs of encouragement.

Austrian Finance Minister Maria Fekter said on Tuesday she was “confident that – as far as I know the details – Greece will get more help.”

The European Central Bank also said it could use profits from Greek bonds to help restructure the country’s debt.

“They could use it to contribute to the sustainability of Greek debt,” ECB Executive Board member Benoit Coeure said in an interview with French daily Liberation.

Greece managed a successful T-bill auction on Tuesday, selling 1.3 billion euros of 3-month paper with the yield easing by 3 basis points to 4.61 percent compared with the previous auction in January.

But even as all sides pushed to seal the deal, there was a growing sense that even the latest bailout, Greece’s second since 2010, might only delay the inevitable – bankruptcy and exit from the single currency.

“It might be something which would allow Greece also to get a new start … to create an economy that can create jobs,” Luxembourg Finance Minister Luc Frieden said on Monday in Washington.

Frieden said it was not the preferred scenario, but the impact on the euro zone would be “less important than a year ago.”

Asked if the euro zone could survive Greek bankruptcy, German Finance Minister Wolfgang Schaeuble told ZDF public broadcaster on Monday: “We are better prepared than we were two years ago.”

Other European countries have become increasingly concerned about the impact on their economies from the debt crisis.

U.S. rating agency Moody’s downgraded the ratings of six European countries late on Monday and put Britain, France and Austria on negative outlook, citing growing risks from Europe’s debt crisis and worries about its ability to make needed reforms.

Uncertainty about the resources that will be devoted to tackling the crisis, and Europe’s “increasingly weak macroeconomic prospects” were other factors behind its action, it said.

($1 = 0.7566 euros) ($1 = 0.7616 euros)

(Additional reporting by Renee Maltezou Writing by David Stamp; Editing by Myra MacDonald)