Greece hoped on Wednesday it could wrap up tortuous negotiations on a debt swap as early as this week when private creditors return to Athens for a fresh round of talks to avert a chaotic default.
After weeks of bargaining, deadlocks and an intervention by euro zone ministers, Greece and its bondholders find themselves back at the drawing board as they search for a compromise needed to clinch a bailout for Athens before it runs out of money.
With time slipping away ahead of a March deadline when Greece faces major bond redemptions, the top negotiator for private creditors, Charles Dallara, returns to Athens on Thursday to resume talks with officials, the government said.
The focus is expected to be on whether Dallara budges from what the creditors' billed as their "final offer" of a 4% coupon on new bonds that Greece will swap out for existing debt after euro zone finance ministers rejected that proposal.
Dallara, who is chief of the International Institute of Finance, left Athens over the weekend after the last round of talks proved inconclusive. He has pleaded for a quick resolution before time runs out but has not disclosed whether his group is willing to change its stance on the coupon, or interest rate.
Greece has insisted on a coupon of not more than 3.5% at the behest of its European partners worried that the debt swap will otherwise not do enough to rein in the country's massive debt burden.
Without a deal, Greece would tumble into a "hard" default that risks setting off panic in the financial system and pulling bigger euro zone members like Italy and Spain closer to the brink, though the ECB has helped to assuage those fears by flooding the banking sector with nearly half a trillion euros of three-year money.
STRUGGLING REFORMS
On top of its list of tasks is the debt swap that must be wrapped up quickly in order to seal a 130 bln rescue plan that European partners and the IMF drew up in October.
There could be trouble even if there is a quick conclusion of the swap, which is aimed at chopping 100 bln euros off Greece's 350-bln-euro debt load by getting bondholders to accept a 50% nominal writedown on their holdings.
Public sector holders of Greek debt, like the European Central Bank, may end up having to write down their holdings if the private sector restructuring is unable to make Greece's debt burden sustainable, IMF chief Christine Lagarde warned.
Greece has already threatened to include a clause enforcing losses on investors if fewer than expected bondholders sign up to the deal voluntarily.
Underscoring lenders' fears that Greece cannot come to grips with the reforms it has promised, dissenting lawmakers overnight defeated a clause to deregulate working hours for pharmacies in a liberalisation package passed by parliament.
The measures had been demanded by the "troika" lenders, whose inspectors were in the Greek capital as parliament voted down the clause and came close to scrapping other provisions of the law.
European partners like paymaster Germany have already warned that Greece must follow through on its reform pledges or put its second bailout at risk. They have demanded that all political party leaders must commit in writing to back reforms.
