ATHENS The European Central Bank must take part in Greece's debt swap, Finance Minister Evangelos Venizelos said on Thursday, warning that a rescue package for Athens also hinges on other issues being resolved such as labor reforms and how Greek banks are to be recapitalized.
Prime Minister Lucas Papademos still hasn't secured broad political support for yet more austerity - another key condition to clinch a deal and avoid a chaotic default - with a meeting of political leaders yet to be pinned down.
Officials have said repeatedly in recent weeks that a deal is around the corner, and European Union Economic and Monetary Affairs Commissioner Olli Rehn reiterated on Thursday that the debt swap deal could be agreed by the end of the week.
Euro zone finance ministers aim to approve the second financing package for Greece on Monday, including agreement on official new financing, the size of voluntary losses private bondholders are willing to accept and new reforms Athens must undertake.
With Greece's talks with banks and insurers almost complete, the focus has turned to determining whether and how the ECB and other central banks would take part in the debt swap deal, and to coaxing Greek party chiefs into backing reforms so that a 130 billion euro rescue plan can be secured in time.
"In parallel with negotiations with private creditors, there must be negotiations for the official sector involvement. This means that the ECB must be mobilized, and we must resolve issues pertaining to national central banks," Venizelos told socialist party lawmakers, in the strongest appeal yet from Athens for the Frankfurt-based central bank to help reach a deal.
Commercial banks have long been demanding that the ECB, the largest single holder of Greek bonds, should share in the restructuring burden in one form or another instead of booking profits.
The ECB could send Athens profits from Greek bonds it holds via a roundabout route that would provide aid while respecting a ban on the ECB financing governments direct, sources said.
German Finance Minister Wolfgang Schaeuble said on Thursday that public sector creditors had already done enough to help alleviate the country's debt crisis.
"Greece needs a reduction of private debt claims of around 50 percent," he told German broadcaster NTV. "An additional contribution from the public sector is not needed."
All sides are worried that the debt swap, in which investors incur losses of about 70 percent to ease Greece's debt burden by 100 billion euros, will not do enough to bring its debt down to the 120 percent of GDP level considered sustainable.
Venizelos, who was scheduled to meet chief EU, IMF, and ECB inspectors in the evening, said the government was also locking horns with the EU and IMF on the recapitalization of banks after the debt swap deal. The government does not want to nationalize the lenders in the process, he said.
Technocrat premier Papademos faces the daunting task of rallying reluctant political leaders behind unpopular wage and pension cuts demanded by lenders as the price for bailout money that is essential to averting a chaotic default.
Papademos, who was appointed in November with the task of clinching deals on the twin bailout and debt swap talks, will meet the socialist, conservative and far-right leaders in his coalition on Friday evening or Saturday in a bid to persuade them, government officials said.
A government spokesman had said earlier in the day that the meeting would take place on Thursday or Friday.
The problem is that political leaders do not want to be linked to painful reforms ahead of national elections expected as early as April, though they have already begun priming the electorate for more pain ahead.
"They've put a gun to our head and said they will shoot us," George Karatzaferis, head of the far-right LAOS party told Flash radio, referring to the country's lenders.
"How can I tell the people that they will not have wages and pensions anymore? Either we keep all that - but on a reduced level - and let Greece take a blow on its head, or it's a meltdown. Unfortunately, that's our situation."
Athens is under pressure to wrap up its share of talks before Monday's euro zone finance ministers meeting.
"NO HAIRCUT ON WAGES?"
The debt swap is not expected to be finalized in any case until Athens can persuade foreign lenders it is serious about pushing through reforms to reshape the economy and deserves funds from the bailout drawn up in October.
Doubting Athens' commitment to reform, the "troika" of European Union, European Central Bank and International Monetary Fund lenders have demanded it deliver immediately on measures like lowering the minimum wage and cutting holiday bonuses.
But those demands have met resistance from local officials who fear further cuts could deepen an already brutal recession and heap new burdens on long-suffering Greeks.
Labor unions and employers, who met on Thursday to discuss the troika's demands, reiterated that they do not want to slash holiday bonuses or the minimum wage. Employers proposed a blanket salary freeze, but no deal was reached.
"We cannot accept any haircut on the minimum wage," said Yannis Panagopoulos, head of private sector umbrella union GSEE after the meeting.
Greece and its lenders need to reach agreement on major issues like wages, pensions and the recapitalization of banks on Thursday before Papademos can present the plan to political leaders, the government says.
"The discussions are very tough," government spokesman Pantelis Kapsis told MEGA television on Thursday.
The lenders have demanded extra spending cuts worth about 1 percent of GDP - or just above 2 billion euros - this year, including big cuts in defence and health spending.
'TEN RED LINES'
With the country dependent on bailout funds for survival, Athens acknowledges it has little bargaining power despite a public outcry against round after round of austerity that has driven up unemployment and spurred near-daily protests.
"In the end, we'll have 10 red lines and the need to make a decision: Are we going to stick to those red lines or do we want the loan? It's that simple," said Kapsis when asked if Athens would draw the line on imposing more pain on its people.
Greece, which triggered the euro zone debt crisis, is now in its fifth year of recession. Spending cuts and tax hikes have failed to get the country's finances back on track and instead led to bouts of social unrest.
Unemployment hit a record high of 18.4 percent in August last year and nearly one in two young Greeks are out of work.
Economists polled by Reuters expect the Greek economy to shrink 3.7 percent this year after a 6 percent slump last year.
In the latest evidence of the economic pain, Athens Archbishop Ieronimos wrote to Papademos on the growing "nightmare" imposed by lenders. "They are asking for even bigger doses of a medicine that has proven lethal," he wrote.
"They are asking us for commitments which do not solve the problems but delay -- only temporarily -- the pre-announced death of our economy, while putting our national sovereignty at risk at the same time."
Without the second bailout and a debt swap deal with private bondholders, a chaotic default could come as early as March 20, when Athens must buy back 14.5 billion euros of debt.
"As a country, we are on the verge of an official default," Kapsis said. "We have borrowed a lot of money all these years and we now have our backs against the wall. We need to make our own decisions. Nobody will get us out of this situation."
(Additional reporting by Angeliki Koutantou and Renee Maltezou; Writing by Deepa Babington and Ingrid Melander; Editing by Hugh Lawson)