UPDATE 4-Greek debt talks to resume Wednesday in Athens

Tue Jan 17, 2012 3:09pm EST

By Renee Maltezou

ATHENS Jan 17 (Reuters) - International creditors said on Tuesday they are coming back to the negotiating table with Greece to resume talks that broke down last week on a debt swap plan crucial to Athens' chances of avoiding a messy bankruptcy.

Debt-choked Greece needs a deal with private bondholders very soon on how much financial pain they are willing to bear to persuade the EU and IMF to extend a new bailout and keep the state afloat when a big bond redemption comes due in late March.

Negotiations will get under way again in Athens on Wednesday after breaking down last Friday over the interest rate on new bonds Greece will offer and a plan to enforce investor losses.

With time running out to clinch a deal, the interruption of talks raised growing concerns over a possible disorderly default by the euro zone member state, whose capital was again the scene of anti-austerity strikes and street protests on Tuesday.

The Institute of International Finance, which negotiates in the name of private bondholders, said its managing director Charles Dallara and Jean Lemierre, special adviser to the chairman, would be back to resume the talks on Wednesday as planned.

"They reiterated their commitment to seeking an agreement on a voluntary debt exchange for Greece and encouraged all parties to work in good faith toward this end with a sense of urgency," the IIF said in a statement.

Meanwhile, a team of EU, IMF and ECB officials started combing through Athens' books on Tuesday to put together a 130-billion-euro rescue package the country needs, together with the debt swap deal, to avoid bankruptcy.

Technocrat Prime Minister Lucas Papademos has urged the coalition parties to put their political differences aside to push forward with reforms agreed with international lenders.

He was scheduled to meet party leaders on Wednesday and Thursday, ahead of the EU and IMF mission chiefs ' visit on Friday .

But ordinary Greeks, who have been hit hard by tax hikes and spending cuts which were part of a first bailout agreed in 2010, fear more austerity and wage cuts with the second bailout and say they cannot take more belt-tightening.

Thousands of angry Greek workers marched to parliament to protest against the lenders' visit, waving banners reading "EU, IMF out!".

"We want them to get lost. They are pushing the country towards collapse with these measures. They are selling off Greece," said Yannis Tsalimoglou, a 51-year old dockworker, whose income has taken a 30-percent hit with the crisis.

Greece has entered its fifth consecutive year of austerity-fuelled recession, with unemployment reaching a record high of 17.7 percent in the third quarter of 2011.

"We must resist," said 52-year-old mother of two Evgenia Panagiou, a private sector employee who has not been paid since October. "Why are they doing this to us? It's not our fault. They (politicians) devoured the money and they are still getting the same big salaries."

COOL HEAD?

Without the debt swap deal, which would see creditors voluntarily giving up at least 50 percent of their promised returns, the EU and IMF have warned they will consider that Athens' debt is not back on a sustainable track and will not release further aid.

While officials involved in the negotiations say all parties are increasingly nervous about the risk of a disorderly default, European Central Bank Governing Council member Ewald Nowotny said involving private sector investors was a challenge that could be mastered.

"It is a problem that, with a cool head, can be resolved," Nowotny said on Tuesday.

The strike brought the Athens metro to a standstill on Tuesday and no ferries left from its main ports. Journalists walked off the job and buses only ran for part of the day.

Strikes and protests last year did not make the government budge from the austerity path required by its lenders in return for aid, and Papademos has vowed to do what it takes to avoid a disorderly default.

But analysts say "a silent anger" is growing among ordinary Greeks. If sacrifices do not bear fruit and if the new government fails to meet targets, protests may attract a higher turnout and get violent again.