More work needed yet on elusive Greek bailout deal

European leaders expressed optimism on Friday that Greece would secure a new rescue package worth 130 billion euros ($171 billion) though policymakers admitted urgent work was still needed to get its debt-cutting programme back on track.
Luxembourg's Jean-Claude Juncker, who will chair a crunch meeting of euro zone finance ministers on Monday, said efforts to slash Greece's debt from 160% of output to a target of 120 percent by 2020 were still "far away" from fruition.
"All the discussions I will have … until Sunday night will try to move the figure nearer to the target," the head of the Eurogroup told reporters in his home capital.
Earlier, Greek caretaker Prime Minister Lucas Papademos talked to fellow euro zone leaders to persuade Berlin and others to back bailout measures needed to stave off bankruptcy.
German Chancellor Angela Merkel, Italy's Mario Monti and Papademos all voiced optimism about an accord during a three-way conference call, Monti's office said in a statement.
The Greek premier also spoke to Dutch Prime Minister Mark Rutte and state television said he would pursue talks with euro zone partners "to create a positive mood in view of Monday's meeting and to dispel doubts that could thwart this agreement".
Mutual accusations of brinkmanship between Athens and other euro capitals have soured the atmosphere and strained ties within the single currency union as it faces its toughest challenge since the common notes and coins were introduced in 2002.
Negotiations were put back on track on Thursday when Athens set out the remaining cuts in a 3.3-billion-euro austerity package whose passage through parliament triggered rioting and looting through central Athens last Sunday.
World stocks hit a fresh 6-1/2 month peak on Friday and the euro gained ground as hopes Greece will seal a long-awaited bailout deal at Monday's meeting fuelled risk appetite.
But there are still question marks over whether the bailout will be enough to help Greece back on its feet after a debt crisis that has seen its economy shrink by 16% from a 2008 peak, triggering mass unemployment and growing poverty.
According to an assessment by the European Commission, the European Central Bank and the IMF, Greek debt will still be around 129% of GDP in 2020 – higher even than the 125% that most euro zone states would probably accept.
The IMF has said that if the ratio cannot be cut to around 120% by 2020, it may not be able to finance the second, 130 billion euro programme for Greece. The Fund's own contribution has not yet been settled.
Central bank sources told Reuters the ECB was studying whether to allow Greek bonds held in national euro zone central banks' investment portfolios to be subject to the same writedowns which private investors are due to take.
Euro zone central banks hold around 20 billion euros of Greek bonds in their traditional investment portfolios. If they do take losses on those bonds it would provide an immediate lump sum for Athens of around 14 billion euros if they take the same hit as their private counterparts.
Other ideas to help Athens meet its long-term debt targets include the euro zone cutting the interest rate on its existing bilateral loans to Greece; increasing the current offer of 130 billion euros of government financing; and asking private investors to agree to bigger losses.
The ECB is also expected to forego profits on Greek bonds it holds as a result of its emergency bond-buying programme, which could raise something like another 12 billion euros.
The debt talks have been clouded by growing acrimony between Athens and Berlin, with German Finance Minister Wolfgang Schaeuble likening Greece to a "bottomless pit".
Public Order Minister Christos Papoutsis warned on Thursday that the euro zone approach amounted to "sheer blackmail".
Earlier, Greece won a public expression of moral support as French Prime Minister Francois Fillon cautioned Europe that it should not "play with the default of Greece".
"The Greeks have promised very important reforms," he told RTL radio. "The Europeans now have to keep their commitments."