Second Greek bailout in reach, funding gap narrows

Euro zone finance ministers, locked in marathon overnight talks, inched towards approving a second bailout for debt-laden Greece that would resolve Athens' immediate repayment needs but seems unlikely to revive the nation's shattered economy.

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, 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.