Euro zone finance ministers are expected to approve a second bailout for Greece on Monday, a move they hope will draw a line under months of turmoil that has shaken the currency bloc, although there is work to be done to make the figures add up.
Diplomats and economists do not expect the package to resolve Greece's economic problems: that could take up to a decade or more – a bleak picture increasingly apparent to several thousand Greeks who demonstrated on Sunday against seemingly endless austerity measures.
The ministers still need to agree new measures to square the numbers, given the ever-worsening state of the Greek economy. But they hope agreement on Monday will help restructure the country's vast debts, put it on a more stable financial footing and keep it inside the single currency zone.
Senior officials from euro zone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the 130-billion-euro programme, including a debt sustainability analysis critical to the IMF.
While there is still scepticism in Germany and other countries that Greece will be able to live up to its commitments – including implementing 3.3 billion euros of spending cuts and tax increases – officials said momentum was building for approval of the deal.
"At the moment it appears it will go exactly this way," Austrian Finance Minister Maria Fekter said on Sunday when asked in a TV interview if the package would be approved. "I don't tink there is a majority to go a different way because a different way is enormously arduous and costs lots and lots of money."
"The gut feeling is that this is going to go through – everyone feels the pressure this time to deliver," said e euro zone official, indicating that the Netherlands, Finland and Germany, which have been the most critical of Athens' ability to commit, looked likely to come on board if the financing gaps could be closed.
GREEK ANGER UNABATED
Greek Prime Minister Lucas Papademos flew to Brussels for last-minute preparations as about 3,000 demonstrators massed on the capital's central Syntagma square.
Riot police shielded the national assembly, braced against a repeat of riots a week ago that saw buildings torched and looted across downtown Athens after a much larger rally involving tens of thousands.
Under one crucial element of the deal, Greece will have around 100 billion euros of debt written off via a restructuring involving private-sector holders of Greek government bonds.
Banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon, resulting in a real 70 percent reduction in the value of the assets.
The bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.
The vast majority of the funds in the 130-billion-euro programme will be used to finance the bond swap and to ensure that Greece's banking system remains stable: 30 billion euros will go to "sweeteners" to get the private sector to sign up to the swap, 23 billion will go to recapitalise Greek banks.
The overall objective is to reduce Greece's debts from 160% of GDP to around 120% by 2020 – the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.
MEETING THE TARGET
U.S. Treasury Secretary Tim Geithner urged the IMF to support the programme.
"This is a very strong and very difficult package of reforms, deserving of support of the international community and the IMF," he said in a statement on Sunday.
As well as working to get the number down, there are moves to convince members of the troika that a debt level of 123-125% in 2020 would still be sustainable.
"If we can get it down to 123 or 124%, I think everyone's going to be okay with that," a euro zone official said after the Sunday conference call. "Everyone will find a way to tweak the numbers."
The ECB is weighing up whether to allow Greek bonds held in euro zone central banks' investment portfolios to be subject to the same writedowns private investors are set to take, central bank sources told Reuters on Friday.
The central banks hold around 20 billion euros of Greek bonds in their traditional investment portfolios and the ECB holds about double that amount from its emergency bond-buying programme. It has also signalled it could forego the profits made on the latter at some point.
If the finance ministers do succeed in reaching an agreement on Monday, it will provide immediate relief to Athens and financial markets, which have been kept guessing since the bailout package was announced last October.
But no one is pretending it will end Greece's problems. Figures last week showed its economy shrank 7% year-on-year in the last quarter of 2011, much more than expected, with further cuts likely to make matters worse.
