Greece, creditors edge closer to deal, talks to continue

Greece and its private creditors made progress on Thursday in talks on restructuring its debt, both sides said, and they will continue negotiating on Friday with the aim of sealing an agreement within a few days.

Athens needs a deal quickly to avert a chaotic default when a major bond redemption comes due in March. Greece's creditors are demanding that the European Central Bank contribute to a deal to put the country's messy finances back on track.

"The talks focused on legal and technical issues and progress was made. They will continue on Friday and probably on Saturday too," a senior Greek government official said.

"We aim to conclude the deal very soon."

The Institute of International Finance, which leads talks on behalf of creditors, similarly cited progress and said work would continue Friday. Neither side disclosed any details.

After weeks of wrangling over the coupon, or interest rate, Greece must pay on new bonds it will swap for existing debt, attention has shifted to whether the ECB and other public creditors will follow private bondholders in swallowing losses.

A day after International Monetary Fund chief Christine Lagarde said the ECB may need to accept losses on its Greek holdings, the European Union's top economic official also warned more public money will be needed to make up a shortfall in the country's second bailout.

Private bondholders have added to the pressure by insisting that others who bought bonds, and in particular the ECB, which is Athens' single biggest creditor, take part in the bond swap.

The swap, also known as the Private Sector Involvement, is aimed at slashing Greece's debt by getting creditors to write down their holdings by 50 percent nominally. Real losses are expected to be higher, depending on the terms involved.

"It would be outrageous if the ECB doesn't take part in the PSI as keeping their Greek bonds to maturity would allow them to make a profit, while everybody else is taking 70 percent (losses) or even more," one source close to the talks said.

The IIF wants public sector officials to be more decisive in negotiations over Greek debt, the bank lobby group's chairman and Deutsche Bank CEO Josef Ackermann told CNBC.

The ECB, which owns roughly 40 billion euros worth of Greek bonds, is no closer to agreeing on whether or not it will take losses on the Greek bonds it owns after a late night Wednesday meeting, euro zone central bank sources said.

Either way, a debt deal at the very latest must be clinched a month before 14.5 billion euros of bond redemptions fall due on March 20, the first source said, i.e., in just over three weeks.

If a deal is not reached by then, Greece could sink into an uncontrolled default that would trigger a banking crisis spreading contagion through the euro zone, though the ECB's creation of nearly half a trillion euros of three-year money for the banks in December has tempered that fear.

Debt-laden Italy saw its government bond yields and the cost of insuring against a default fall on Thursday, helped by solid demand for short-term debt at an auction.