* Merkel, Monti, Papademos optimistic about Greek accord
* Urgent work still needed to meet debt target
* Most Greeks want to stay in euro - poll
By George Georgiopoulos
ATHENS, Feb 18 (Reuters) - Greece’s cabinet on Saturday approved a final set of austerity measures sought by the EU and IMF as a condition for a 130-billion euro ($171 billion) rescue package, raising the chances of a deal next week to avert a chaotic default on its debt.
The approval was largely a formality after Athens last week unveiled details of the extra budget and public sector wage cuts worth 325 million euros to euro zone partners.
Lingering doubts over whether Greece can bring its mountain of debt down to more manageable levels in coming years could still hold up the rescue package. Some officials in the 17-nation currency union warn chances of a deal at a euro zone meeting on Monday are little higher than 50-50.
“The 325 million euros worth of measures were approved unanimously,” said one minister, speaking on condition of anonymity, about the cuts, part of a 3.3-billion-euro package of austerity measures that have triggered riots in Athens.
A government official said cabinet had also agreed to launch by March 8 a debt swap for private creditors with the aim of completing it by March 11. The swap is intended to accompany the rescue deal and will mean that creditors take a 70 percent cut in the real value of their holdings.
After months of often acrimonious negotiations, Greek hopes are rising that Monday’s meeting in Brussels will endorse the rescue which Athens needs to avoid bankruptcy on March 20 when major debt repayments fall due.
“The Greek people have done everything they can and we are determined to make good on our commitments,” Public Order Minister Christos Papoutsis said before the meeting.
In a statement, Prime Minister Lucas Papademos regretted that extra pension cuts could not be avoided, but said the impact was limited because it would only affect the part of the pension above a monthly threshold of 1,300 euros.
“We all agree the immediate support of economic activity is a priority of the government’s economic policy,” he added, while not detailing what growth measures were under consideration.
A survey by pollster MRB for Sunday’s Realnews newspaper showed 72.7 percent of Greeks want the country to stay in the euro, but only about half believe it will manage to do so.
On Friday, German Chancellor Angela Merkel, Italian Prime Minister Mario Monti and Papademos all voiced optimism about a Greek accord during a three-way conference call, Monti’s office said.
However, Jean-Claude Juncker, who will chair Monday’s meeting of the Eurogroup in Brussels, made clear that urgent work was still needed to get a programme to reduce Greece’s crippling debts back on track.
At stake is a target of lowering the debt from the equivalent of 160 percent of annual Greek economic output now to a more manageable 120 percent by 2020.
“All the discussions I will have ... until Sunday night will try to move the figure nearer to the target,” Juncker said.
At the moment, EU and IMF officials believe that target - which assumes that Greece will run a budget surplus next year, excluding the massive cost of its debts - will be missed.
Under the main scenario of an analysis by the European Commission, the European Central Bank and the International Monetary Fund, Greek debt will fall to only 129 percent of gross domestic product in 2020, one official said.
The euro zone is therefore looking at modifying the deal negotiated over many months with private creditors under which they would accept a cut of around 70 percent in the real value of their Greek bondholdings.
Senior euro zone finance officials meet on Sunday to discuss the analysis and find ways to bring the debt closer to the 120 percent target before the finance ministers gather on Monday.
“If you do a number of things you can bring the 129 close to 120,” one euro zone official familiar with the document said.
These might include changes to interest accrued on privately held bonds, but the EU and its national institutions might also play their part, the official said.
Interest rates on EU loans to Greece could be cut, and those national central banks in the euro zone which hold Greek bonds might accept similar terms to the private creditors on some of their holdings.
The national central banks own an estimated 12 billion euros of Greek debt. The European Central Bank has refused to take part in the complex deal for the private creditors - involving swapping old bonds for new ones with a lower face value, lower interest rates and longer maturities - and would need to approve the national central bank decision.
Officials are also considering a cut in the cash “sweetener” which would be offered to the private creditors in return for accepting the cut in the value of their bond holdings.
With Greek morale near rock bottom, the national mood darkened further after armed thieves looted a museum on Friday in Olympia, birthplace of the Olympic Games. They stole bronze and pottery artefacts weeks after the National Gallery was burgled.
A Greek newspaper suggested the state could no longer look after the nation’s immense cultural heritage. “The Greek state has gone bankrupt, let’s face it,” the daily Kathimerini said.
“If the state cannot guard the country’s great cultural heritage for financial or other reasons it must find other ways to do it,” the conservative daily said.
“It could, for example, turn to large foundations and ask them to assume the cost of security at the country’s important museums in the next two to three difficult years.”