Germany and France pressed on Monday for a rapid deal between Greece and its private creditors that cuts its soaring debt to sustainable levels and said they were committed to a sealing a new bailout for Athens by March to avert a disastrous default.
Euro zone finance ministers met in Brussels to discuss the terms of a Greek debt restructuring and new treaties that will pave the way for tighter fiscal discipline and a new rescue fund the bloc wants in place by mid-year.
Ahead of that meeting, French Finance Minister Francois Baroin said an elusive deal to convince the banks and investment funds that own Greek debt to accept deep losses on their holdings appeared to be "taking shape". But his German counterpart Wolfgang Schaeuble warned that any deal must help Greece cut its debt mountain to "not much more than 120 percent of GDP" by the end of the decade, from roughly 160 percent today, something many economists believe will not be achieved by the existing plan.
"The negotiations will be difficult, but we want the second programme for Greece to be implemented in March so that the second (bailout) tranche can be released," Schaeuble told a news conference in Paris with Baroin and the heads of the German and French central banks.
"Greece must fulfil its commitments, it is difficult and there is already a lot of delay," Schaeuble said. After several rounds of talks, Greece and its private creditors are converging on a deal in which private bondholders would take a real loss of 65 to 70 percent on their Greek bonds, officials close to the negotiations say. Charles Dallara, the Institute of International Finance chief who is negotiating on behalf of the private debt holders, left Athens over the weekend saying banks had no room to improve their offer.
Sources close to the talks told Reuters on Monday that the impasse centred on questions of whether the deal would return Greece's debt mountain, currently over 350 billion euros, to levels that European governments believe are sustainable. In Brussels, European Economic and Monetary Affairs Commissioner Olli Rehn said talks had been "moving well" and expressed confidence a deal could be sealed this week.
German Chancellor Angela Merkel said there was no question of extending Greece a bridging loan if talks with the private sector dragged on further. The euro pushed up to its highest level against the dollar in nearly three weeks on hopes Greece and the banks could overcome differences and seal a successful debt swap.
Speaking in Berlin not far from Merkel's Chancellery, IMF chief Christine Lagarde urged European governments to increase their financial firewall to prevent Greece's troubles from ensnaring bigger countries like Italy and Spain. After dealing with Greece, euro zone ministers will choose a replacement for European Central Bank Board member Jose Manuel Gonzales Paramo, whose term ends in May.
The 17 ministers of the euro zone will then be joined by 10 ministers from the other European Union countries to finalise a treaty setting up the euro zone's permanent bailout fund, the ESM. The 27 EU finance ministers will also prepare the final draft of another treaty to sharply tighten fiscal discipline in the euro zone, called the "fiscal compact", that is designed to ensure another sovereign debt crisis cannot happen in future. EU leaders are to sign off on both treaties at a summit on January 30, allowing the ESM to become operational in July.