ATHENS Greece hopes to wrap up tortuous negotiations on a debt swap this week when private creditors return to Athens for a fresh round of talks to avert a chaotic default, it said on Wednesday.
After weeks of bargaining, deadlocks and an intervention by euro zone ministers, Greece and its bondholders find themselves back at the drawing board as they search for a compromise needed to clinch a bailout for Athens before it runs out of money.
With time slipping ahead of a March deadline when Greece faces major bond redemptions, the top negotiator for private creditors, Charles Dallara, returns to Athens on Thursday to resume talks with officials, both sides said.
"The government aims to complete negotiations on the debt swap as early as this week," government spokesman Pantelis Kapsis told reporters.
"We are now in the most delicate phase of the negotiations to complete the debt swap ... It is clear that what happens in the coming days will affect the country's course for years."
The Institute of International Finance, which Dallara heads, said the latest discussions would be "informal" and aim to sort out all legal and technical issues quickly.
But the focus is expected to be on whether creditors budge from what they billed as their "final offer" of a 4 percent coupon on new bonds that Greece will swap out for existing debt, after euro zone finance ministers rejected that proposal.
Dallara left Athens over the weekend after the last round of talks proved inconclusive. He has pleaded for a quick resolution before time runs out but has not disclosed whether his group is willing to change its stance on the coupon, or interest rate.
The chairman of BNP Paribas, one of the banks on the committee leading talks for creditors, however, suggested bondholders would not retreat from their position easily.
"The offer that is now on the table is the maximum acceptable for a voluntary deal," BNP Chairman Baudouin Prot said. "All the elements are now in place."
Greece has insisted on a coupon of not more than 3.5 percent at the behest of its European partners worried that the debt swap will otherwise not do enough to rein in the country's massive debt burden.
Without a deal, Greece would tumble into a "hard" default that risks setting off panic in the financial system and pulling bigger euro zone members like Italy and Spain closer to the brink, though the ECB has helped to assuage those fears by flooding the banking sector with nearly half a trillion euros of three-year money.
Sinking further into recession and gloom, Greece is finding itself in an increasingly precarious state yet again as it confronts difficult debt talks, political dithering and snail-paced reforms that have exasperated lenders.
On top of its list of tasks is the debt swap that must be wrapped up quickly in order to seal a 130 billion rescue plan that European partners and the International Monetary Fund drew up in October.
There could be trouble even if there is a quick conclusion of the swap, which is aimed at chopping 100 billion euros off Greece's 350-billion-euro debt load by getting bondholders to accept a 50 percent nominal writedown on their holdings.
Public sector holders of Greek debt, like the European Central Bank, may end up having to write down their holdings if the private sector restructuring is unable to make Greece's debt burden sustainable, IMF chief Christine Lagarde warned.
Greece has already threatened to include a clause enforcing losses on investors if fewer than expected bondholders sign up to the deal voluntarily.
The situation in Greece remained extremely difficult, and must be prevented from spreading to bigger euro zone economies, Lagarde said.
Even with a successful debt swap, Greece faces trouble on other fronts. Beset with squabbling politicians and entrenched special interests, the country has made little headway in pushing through a host of labor and economic reforms demanded by lenders as a condition for bailout funds.
Underscoring lenders' fears that Greece cannot come to grips with the reforms it has promised, dissenting lawmakers overnight defeated a clause to extend working hours for pharmacies in a liberalization package passed by parliament.
The measures had been demanded by the "troika" lenders, whose inspectors were in the Greek capital as parliament voted down the clause and came close to scrapping other provisions of the law.
Greek authorities on Wednesday morning dispersed a protest by a few hundred Communists who had gathered outside a hotel where EU and IMF officials were staying. The demonstrators shouted slogans and held up banners reading "Out with the troika".
"This was a symbolic action to show our opposition to the troika's presence in Greece and to the government's proposals ... that mutilate workers' rights," said Communist KKE party lawmaker Nikos Karathanassopoulos.
European partners like paymaster Germany have already warned that Greece must follow through on its reform pledges or put its second bailout at risk. They have demanded that all political party leaders must commit in writing to back reforms.
(Additional reporting by Harry Papachristou; writing by Deepa Babington; editing by Stephen Nisbet, Ron Askew)