Greece debt talks 'close to deal'

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Media captionOlli Rehn tells the World Economic Forum in Davos that the next three days are crucial for the eurozone

Greece could reach a deal with its creditors over the weekend, according to a senior European official.

"We're very close," the European Union's Economic Commissioner, Olli Rehn, said at the World Economic Forum in Davos.

Greek Prime Minister Lucas Papademos also said he was optimistic a deal could be reached in "the coming days".

Greece and its private creditors have failed to agree to reduce the existing debt to help Greece avoid bankruptcy.

"They're about to close a deal, if not today, maybe over the weekend, preferably in January rather than February," Mr Rehn said.

He said he hoped a deal would be done by the EU summit that takes place on Monday.

Mr Papademos told the Reuters news agency that the two parties had made "significant progress over the last few weeks and in the last few days in particular. We are trying to conclude the discussions as quickly as possible".

"Greece will not default," he said.

Athens is negotiating with the Institute of International Finance (IIF), which represents Greece's private creditors. The main sticking point in the discussions is the interest rate that Greece will pay on newly-issued bonds that will replace its existing debts.

The IIF has said it wants no less than 4%, while Athens, backed by eurozone finance ministers, wants the rate to be well below 3.5%.

Agreeing a deal is a precondition of receiving further bailout funds from the European Commission, the European Central Bank and the International Monetary Fund (IMF).

Mr Papademos said the aim was to complete discussions with this so-called troika "by the middle of next week at the latest".

Stronger discipline

Mr Rehn said a deal would be part of a "crucial" three days for the eurozone. The European Council of all 27 leaders in the EU is due to meet on 30 January.

"We need reinforced fiscal discipline on the one hand and firewalls on the other," in addition to a Greek debt deal, Mr Rehn said.

His comments come on the day when the future of the eurozone took centre stage at the annual meeting of the World Economic Forum.

Public debt

Greek officials are talking with private creditors about reducing its debt before a key payment comes due in March.

Athens also needs another tranche of its bailout aid from eurozone and international lenders, without which it cannot afford to repay 14.5bn euros ($19bn; £12.1bn) worth of bonds that come due on 20 March.

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Media captionGeorge Soros has warned that Europe is likely to face a "lost decade" of economic stagnation

On Thursday, Mr Papademos met Charles Dallara, head of the IIF, and Jean Lemierre, senior adviser to the chairman of French bank BNP Paribas.

Private bondholders are being asked to write-off half their Greek debt, and in return accept cash payments and new bonds with longer maturities.

This week, the issue of whether Greece's public lenders will also need to take a hit has come up.

"The key is that all sides now accept that, for the numbers to add up, the public sector has to take a hit," said the BBC's economics editor Stephanie Flanders.

"There's a limit to the losses that the private sector debt holders will accept, and they have reached it."

That leads to the issue of how much European governments are willing accept losses on the debts they hold - the European Central Bank has about 40bn euros of Greek bonds.

In Davos, however, eurozone leaders appeared reluctant to talk about any ECB involvement in the debt write off.

"Of course the private sector has to take responsibility, that has been agreed in July and now we are discussing the concrete figures [for that]," said German Finance Minister Wolfgang Schaeuble.

If a deal is not agreed, Greece could decide itself what, if anything, to repay its creditors - in effect, default on its debts.

This so-called disorderly default would undermine confidence in the eurozone economy and its banking system.

"We don't expect a default in Greece," added Mr Schaeuble, "We can avoid it and we will avoid it."

Some analysts have said a default could result in Greece being forced to give up the euro.

Treaty changes

Greece was bailed out in 2010 and again last year by the eurozone and the IMF.

The Greek talks take place as eurozone leaders rush to agree the details of a treaty imposing strict rules on government spending.

They are also trying to agree the details of a permanent eurozone bailout fund, the European Financial Stability Mechanism, to deal with sovereign debt crises in future.

But differences remain between France and Germany over the details of the fund and its implementation.

"We are not here in a negotiation," said French Finance Minister Francois Barron, speaking at Davos.

"The firewall is one of the best policy responses, but that is only one of the issues, we haven't dealt with this finally today but it will be on the agenda on Monday."

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