Prospects of a deal on a second international bailout for Greece rose today when euro zone finance ministers were summoned to talks in Brussels while Greek political leaders met to approve a tough reform and austerity programme.
Euro group chairman Jean-Claude Juncker invited ministers from the 17-nation single currency area to meet tomorrow evening and the International Monetary Fund said managing director Christine Lagarde would also attend.
They are expected to examine a complex package involving a €130 billion EU-IMF rescue and a bond swap with private creditors, which hinges on Athens accepting conditions that require big cuts in many Greeks' living standards.
Mr Juncker went ahead and called the meeting even though leaders of the three Greek coalition parties were still discussing with prime minister Lucas Papademos the terms of a rescue package to avoid a chaotic default in March that would send wider tremors around the world economy.
International lenders are demanding that the leaders of the conservative New Democracy party, Pasok socialists and far-right Laos commit themselves in writing to implement the programme of pay and pension cuts, structural and administrative reforms.
After a series of delays, the leaders finally received a 15-page document today morning laying out the principles of the bailout and its conditions, a party official said. Attached were a further 30 or so pages laying out how the programme will be implemented.
The plan involves cutting the minimum wage by about 20-22 per cent, a government official said. It also gives political leaders the option of cutting pensions over €1,200 by up to 20 per cent or cutting supplementary pensions by 15 per cent on average or a combination of cuts in both main and supplementary pensions, the official said.
Other elements of the deal have been gradually slotting in place, including a bond swap with private creditors to ease Greece's debt burden by reducing the value of government bonds held by banks and insurers.
The new bonds would have an average interest rate of around 3.5 per cent, said state NET TV, but creditors will have to swallow a 70 per cent cut in the value of their debt holdings.
German deputy finance minister Thomas Steffen said in Berlin the bond swap offer to private creditors could be made as early as next week. He voiced exasperation at Greece's failure to implement economic and fiscal reforms since the debt crisis erupted two years ago, saying governance remained below European standards.
"I believe we can say today tha we have made little progress on Greece since 2010, worryingly little progress," Steffen said.
With banks and insurers having mostly agreed to take a hefty writedown, Athens and the commercial banks are urging the European Central Bank to forego profits on its Greek bond holdings to help cut the debt to a sustainable level.
But ECB policymakers are still divided on what contribution the bank could make to a restructuring of Greek debt, two euro zone monetary policy sources said.While the ECB has ruled out joining private creditors in voluntarily accepting losses on its Greek bonds, it could provide indirect relief by renouncing profits from bonds it bought at below face value.
The ECB's 23-member governing council, which holds a regular monthly meeting tomorrow, has yet to agree a position. Some policymakers are reluctant to share the burden for fear of easing pressure on Athens to agree spending cuts.
There are also concerns about avoiding setting a precedent for other countries.
"There is no agreement yet. Some people on the council still oppose this," said one monetary policy source, adding that ECB president Mario Draghi had not yet revealed his position.
"As far as I know no formal decision has been made, although of course it is one of the things we could theoretically agree to," a second source said.
Facing elections possibly as early as April, Greek leaders have been loath to accept the lenders' tough conditions. An opinion poll today showed that Pasok, which ruled Greece until Mr Papandreou's government collapsed last November, has most to fear from elections.
The monthly survey by Public Issue for Kathimerini newspaper showed support for Pasok had collapsed to eight per cent from the nearly 44 per cent it commanded when it returned to power in 2009.
One Greek news website wrote an open letter to Mr Papademos today demanding that he "end this water torture"."Greeks cannot any longer stand this torment of constant insecurity that is destroying the country and hurting our national dignity," it said.
"The prime minister must end this endless bargaining that demeans the country and its citizens."
Euro zone officials say the full package must be agreed with Greece and approved by the euro zone, ECB and IMF before February 15th so that complex legal paperwork can be completed in time to avoid a bond redemption deadline on March 20th.
Reuters