Greeks strike bailout deal in time for EU meeting

By George Georgiopoulos and Renee Maltezou
ATHENS, Feb 9 (Reuters) – Greek leaders clinched a long-stalled deal on reforms and austerity measures needed to secure a bailout and avoid a messydefault, government sources said, hours before the country’s financial backers were to meet in Brussels on Thursday.

Athens’ partners in the European Union and the International Monetary Fund have been exasperated by a lack of agreement on thesacrifices they demanded in return for a 130 billion euro ($172 billion) bailout, with time running out for Greece before a major March 20 bond redemption.

Finance Minister Evangelos Venizelos set off for Brussels without a complete deal afterall-night talks with leaders of the three Greek coalition parties and chief EU and IMF inspectors left one sensitive issue – pension cuts – unresolved.

But following further negotiation on Thursday, two government sources said an overallagreement had been reached.

“A few minutes ago, I got a call from the Prime Minister of Greece saying that an agreement had been reached and has been endorsed by the major parties,” European Central Bank President Mario Draghi told a newsconference in Frankfurt in the first official confirmation.

The euro <EUR=> and European stocks strengthened on news of the breakthrough, which raised prospects of averting a chaotic hard default by the euro zone’s most indebted country within weeks, that could send tremors around the global economy. (news)
The risk premium investors charge for holding Italian and Spanish bonds rather than safe-haven German Bunds fell back.
Euro zone officials say the fullpackage must be agreed with Greece and approved by the EU, IMF and European Central Bank by Feb. 15 so legal paperwork can be completed in time to avoid a chaotic default that may threaten the global economic recovery.

“The financial survival ofthe country in the coming years depends on the new programme … It is a time of responsibility for everyone,” Venizelos said.

Greece’s two major labour unions called a 48-hour strike for Friday and Saturday against the reforms that the partychiefs managed to agree on. (news)
“The painful measures that create misery for the youth, the unemployed and pensioners do not leave us much room,” secretary general of the ADEDY union, Ilias Iliopoulos, told Reuters.

“We won’taccept them. There will be a social uprising.”

Venizelos should now be able to present to fellow euro zone finance ministers a fully-fledged new bailout plan, including a commitment for 3.3 billion euros in budget cuts this year, when they meetat 1700 GMT.

Before then, all eyes will be on what the ECB is willing to do to help Greece at its monthly policy meeting. (news)
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Other stories on euro zone debt crisis (news)
Factbox on new Greek austerity measures (news)
Greece’s broken promises anger EU partners (news)
Greek leaders united by desire to avoid blame(news)
Euro zone in graphics http://r.reuters.com/hyb65p
Interactive crisis timeline http://link.reuters.com/xuw36s
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WRITTEN COMMITMENT SOUGHT
After the overnight talks, a seniorgovernment official said the party chiefs had agreed on how to make about 90 percent of the promised savings, leaving a relatively small hole in the calculations.

Asked how the differences over pension cuts had been resolved, another governmentofficial told Reuters: “”There will be cuts in other areas of public spending and we will see how we will minimise reductions in pensions.”

International lenders are demanding that the party leaders commit themselves in writing to implement the programme of pay and pension cuts, structural and administrative reforms.

The leaders have been loath to accept the lenders’ tough conditions, which are certain to be unpopular with voters. They face parliamentary elections possibly as early asApril.

“In these difficult hours we have to look after the ordinary people, the pensioners,” conservative New Democracy leader Antonis Samaras said after the political leaders’ meeting.

“I haven’t got the right to not negotiate hard and Idon’t care what other people think about that. We have to make sure that people will suffer less.”

Newspaper editorials criticised the harshness of the austerity measures demanded by Greece’s lenders, but said there was no other option but togive in and agree.

“The memorandum seems, and in fact is, heavy and unbearable for the majority of the Greek people but unfortunately it is the only choice so that the country is not led over the cliff,” financial daily Imerisia said. Greece has been falling deeper into recession since it was rescued by a first bailout deal in May 2010, and latest unemployment data showed the country’s jobless rate rose to a new record of 20.9 percent in November. (news)
Industrialoutput fell 11.3 percent in December, in further proof of the deep economic malaise. (news)

ALMOST THERE
Prospects for a bailout deal had brightened when the finance ministers’ chairman Jean-Claude Juncker called theBrussels meeting – which IMF managing director Christine Lagarde will attend – to examine the bailout plan.

On offer from the EU and IMF is a package involving the new rescue funds and a bond swap with private creditors to ease the nation’slarge debt burden.

Athens is also urging the ECB to forego profits on its Greek bond holdings in what could raise 12 billion euros or more. The bank’s 23-member Governing Council met on Thursday but Draghi declined to say how the Greek bondsheld by the ECB and national central banks would be handled. (news)
For the bailout, Athens must accept conditions requiring big cuts in many Greeks’ living standards. The smallest member of the coalition, the far-right LAOS party, wasparticularly uncomfortable with the measures.

Panos Beglitis, spokesman for PASOK which is in the coalition along with LAOS and the conservative New Democracy party, said the leaders had agreed to cut the minimum wage by 22 percent as part ofefforts to make the economy more competitive. Plans to scrap holiday bonuses paid to private sector workers had been dropped.

Two sources said the government would promise spending cuts and tax rises worth 13 billion euros from 2012 to 2015,almost double the seven billion originally pledged.

Other elements of the deal have been gradually slotting into place, including the bond swap with private creditors to ease Greece’s debt burden by reducing the value of government bonds held by banks and insurers.

Private bondholders are expected to take real losses of about 70 percent on their holdings as part of the swap, under which they receive new, longer-dated Greek bonds to try to reduce Greece’s debt burden by about 100 billion euros.

Talks on the swap have dragged on for weeks, complicated by the position of hedge funds and demands that public creditors also chip in. Officials and bankers say the deal cannot be finalised until the rest of the rescue package is naileddown. ($1 = 0.7545 euros)
(Additional reporting by Renee Maltezou, Lefteris Papadimas and Karolina Tagaris in Athens and Paul Carrel in Frankfurt; Writing by David Stamp and Deepa Babington; editing by Elizabeth Piper)

Annunci

Greek minister heads to Brussels with incomplete bailout deal (let’s hope for the better…)

By George Georgiopoulos and Harry Papachristou
ATHENS, Feb 9 (Reuters) – Greek leaders failed on Thursday to agree on reforms and austerity measures, the price of a bailout to avoid a messy default,forcing Finance Minister Evangelos Venizelos to go to the country’s financial backers with an incomplete deal.

Greece’s partners in the European Union and the International Monetary Fund are increasingly exasperated by a lack of agreement on the measures they demand in return for a 130 billion euro ($172 billion) bailout and time is running out for the country before a major March 20 bond redemption.

Euro zone officials say the full package must be agreed with Greece and approved by the EU, European Central Bank and IMF before Feb. 15 so legal paperwork can be completed in time to avoid a chaotic default that could threaten global economic recovery.

But after all-night talks with leaders of the three parties in the Greekcoalition and with chief EU and IMF inspectors, Venizelos emerged shortly before dawn to say that one issue was unresolved.

“I am leaving for Brussels in a short while with the hope that the Eurogroup meeting will be held, and a positive decision on the new programme will be taken,” he told reporters.

“The financial survival of the country in the coming years depends on the new programme … It is time of responsibility for everyone.”

Venizelos had hoped to present to his felloweuro zone finance ministers in Brussels a fully-fledged deal on a new bailout plan, including commitment for 3.3 billion euros in budget cuts this year.

A spokesman for the socialist PASOK party said disagreement over pension reform had been the stumbling block.

A senior government official said the party chiefs had agreed on how to make about 90 percent of the promised savings, leaving a relatively small hole in the calculations.

Athens had to close this gap quickly, said theofficial. “Greece has another 15 days to specify fiscal savings worth 300 million euros,” he said on condition of anonymity.

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Other stories on euro zone debt crisis(news)
Factbox on new Greek austerity measures (news)
Greece’s broken promises anger EU partners (news)
Greek leaders united by desire to avoid blame(news)
Euro zone in graphics http://r.reuters.com/hyb65p
Interactive crisis timeline http://link.reuters.com/xuw36s
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VICIOUS CIRCLE
Earlier, Prime Minister Lucas Papademos said he hoped the party leaders could sort out their differences before the euro zone finance ministers meet at 1700 GMT.

Newspaper editorials criticised the harshness of the austerity measures demanded by Greece’s lenders, but said there was no otheroption but to give in and agree.

“The memorandum seems, and in fact is, heavy and unbearable for the majority of the Greek people but unfortunately it is the only choice so that the country is not led over the cliff,” financial daily Imerisiasaid.

Greece has been falling deeper into recession since it was rescued by a first bailout deal in May 2010, with unemployment reaching record highs of over 18 percent.

“The measures that are being imposed on Greeks so as to ensure therestructuring of the debt have the same, unsuccessful recipe: more cuts, which will cause deeper recession and will create the need for new cuts. A vicious circle,” centre-left daily Ta Nea wrote in the first-page editorial.

“Unfortunately, we do not have the ‘No’ choice to this policy. We either reduce the debt and stay in the eurozone, even if we become much poorer, or we default. There is not a third choice.”

Prospects for a long-awaited deal on Greece’s new bailout appeared tobrighten when the finance ministers’ chairman Jean-Claude Juncker called the Brussels meeting – which IMF managing director Christine Lagarde will also attend – to examine the bailout and accompanying bond swap.

On offer from the EU and IMF is apackage involving the new rescue funds and a bond swap with private creditors to ease the nation’s large debt burden.

Athens is also urging the ECB to forego profits on its Greek bond holdings in what could raise 12 billion euros or more. The ECB’s 23-member Governing Council, which meets on Thursday, has yet to agree a position. (news)

RELUCTANT LEADERS
For the bailout, Athens must accept conditions requiring big cuts in many Greeks’ living standards. Thesmallest member of the coalition, the far-right LAOS party, was particularly uncomfortable with the measures.

“The president of LAOS George Karatzaferis expressed serious reservations,” said Papademos, a former central banker brought in when aPASOK government collapsed last November.

Panos Beglitis, spokesman for PASOK which is in the coalition along with LAOS and the conservative New Democracy party, said they had disagreed over the level of cuts to supplementary pensions needed tosafeguard the pension system.

However, Beglitis told reporters the leaders had agreed to cut the minimum wage by 22 percent as part of efforts to make the economy more competitive. Plans to scrap holiday bonuses paid to private sector workers had been dropped.

Two sources close to the Athens talks said the government would promise spending cuts and tax rises totalling 13 billion euros from 2012 to 2015, almost double the seven billion it originally pledged.

International lendersare demanding that the party leaders commit themselves in writing to implement the programme of pay and pension cuts, structural and administrative reforms.

However, the leaders have been loath to accept the lenders’ tough conditions, which arecertain to be unpopular with voters. They face parliamentary elections possibly as early as April.

In Greece and abroad, frustration grows over failure to implement structural reforms and tackle the roots of the crisis, including a widespread tax evasion.

“Nothing has been done. They have not cracked down on tax evasion, they have not done anything on the reform of the country. They closed their ears and moved in an one way road,” said Fotis Kouvelis, head of the Democratic Left party.

Kouvelis, whose small leftist opposition party has jumped to the second place in recent opinion polls, told Skai television he would vote against the EU/IMF plan, which he said asks for “unacceptable” measures. The opposition does not need toapprove the deal for it to go ahead.

Other elements of the deal have been gradually slotting into place, including the bond swap with private creditors to ease Greece’s debt burden by reducing the value of government bonds held by banks andinsurers.

The new bonds would have an average interest rate of around 3.5 percent, said state NET TV, with creditors having to swallow a 70 percent cut in the value of their debt holdings.

Ratings agency Standard & Poor’s said Greece wouldprobably fail to achieve manageable debt levels if it relied on the 70 percent reduction in the value of bonds held by private creditors, putting the onus on the ECB to take losses too. ($1 = 0.7545 euros)
(Additional reporting by ReneeMaltezou, Lefteris Papadimas and Karolina Tagaris in Athens and Paul Carrel in Frankfurt; Writing by David Stamp and Ingrid Melander)

Greece, creditors edge closer to deal, talks to continue

By George Georgiopoulos andLefteris Papadimas
ATHENS, Jan 26 (Reuters) – Greece and its private creditors made progress on Thursday in talks on restructuring its debt, both sides said, and they will continue negotiating on Friday with the aim of sealing an agreementwithin a few days.

Athens needs a deal quickly to avert a chaotic default when a major bond redemption comes due in March. Greece’s creditors are demanding that the European Central Bank contribute to a deal to put the country’s messy financesback on track.

“The talks focused on legal and technical issues and progress was made. They will continue on Friday and probably on Saturday too,” a senior Greek government official told Reuters on condition of anonymity.

“We aim toconclude the deal very soon.”

The Institute of International Finance, which leads talks on behalf of creditors, similarly cited progress and said work would continue Friday. Neither side disclosed any details.

After weeks of wrangling over the coupon, or interest rate, Greece must pay on new bonds it will swap for existing debt, attention has shifted to whether the ECB and other public creditors will follow private bondholders in swallowing losses.

A day after InternationalMonetary Fund chief Christine Lagarde said the ECB may need to accept losses on its Greek holdings, the European Union’s top economic official also warned more public money will be needed to make up a shortfall in the country’s secondbailout.(news)
EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters “there is likely to be some increased need of official sector funding, but not anything dramatic.” It was the first time a top EU official had said morepublic money than a planned 130 billion euro package would be required to rescue Greece.

Private bondholders have added to the pressure by insisting that others who bought bonds, and in particular the ECB, which is Athens’ single biggestcreditor, take part in the bond swap.

The swap, also known as the Private Sector Involvement, is aimed at slashing Greece’s debt by getting creditors to write down their holdings by 50 percent nominally. Real losses are expected to be higher,depending on the terms involved.

“It would be outrageous if the ECB doesn’t take part in the PSI as keeping their Greek bonds to maturity would allow them to make a profit, while everybody else is taking 70 percent (losses) or even more,” onesource close to the talks said.

The IIF wants public sector officials to be more decisive in negotiations over Greek debt, the bank lobby group’s chairman and Deutsche Bank (DBK.FRA) CEO Josef Ackermann told CNBC.

The ECB, which ownsroughly 40 billion euros worth of Greek bonds, is no closer to agreeing on whether or not it will take losses on the Greek bonds it owns after a late night Wednesday meeting, euro zone central bank sources told Reuters.

Either way, a debt dealat the very latest must be clinched a month before 14.5 billion euros of bond redemptions fall due on March 20, the first source said, i.e., in just over three weeks.

If a deal is not reached by then, Greece could sink into an uncontrolleddefault that would trigger a banking crisis spreading contagion through the euro zone, though the ECB’s creation of nearly half a trillion euros of three-year money for the banks in December has tempered that fear.

Debt-laden Italy saw itsgovernment bond yields and the cost of insuring against a default fall on Thursday, helped by solid demand for short-term debt at an auction. (news)

COUPON STUMBLE
So far the coupon on the new bonds had been the main stumbling block in the negotiations.

On Monday, euro zone ministers rejected the creditors’ offer of a 4 percent coupon on new bonds after Greece and its EU/IMF lenders held out for a 3.5 percent interest rate. They want the lower coupon toensure the country’s debt falls to a target of 120 percent of GDP by 2020, from around 160 percent now.

A second source familiar with the negotiations said the “coupon is parked for current time until we can get closer on detail of the overallpackage”. Asked if that would include the ECB, the source said: “We would expect it to, still to be determined though.”

Greek bankers and government officials said they had not heard of any new proposal from creditors, after local media reported they were willing to improve their “final offer” of a 4 percent interest rate on the new bonds to about 3.75 percent.

One Greek daily, Kerdos, said participation of public sector creditors including the ECB in the swap deal was apre-condition for that offer. (news)
“Until last week, we knew that the steering committee was authorised to concede up to 3.8 percent for the average coupon,” one senior Greek banker told Reuters.

“But things are once again up inthe air. You have to deal with politicians and 15 different governments asking for different things.”

Exact details of Friday’s meetings have yet to be scheduled, after IIF chief Charles Dallara left a meeting with Prime Minister Lucas Papademos late on Thursday.

Earlier, German Chancellor Angela Merkel said the debt swap talks were on a “good path”. (news)
Senior EU, IMF and ECB officials are holding talks with the Greek government in parallel with the debt swap talks,to flesh out a new 130-billion euro bailout for Greece. They have warned they need the debt swap to cut Greece’s debt substantially in order to go ahead with the new loans.

Talks with the “troika” inspectors on the new bailout programme areexpected to go well into next week.

A senior German official said Greece was not expected to play a major role at the EU leaders summit on Monday and that Germany does not expect the troika to deliver a report on Greece’s progress before thesummit. (news)
Greece has made little progress on reforms as it stumbles through its worst post-World War II economic crisis. The task facing the country has been made harder with anger against austerity measures and squabblingpoliticians running high.

A poll on Thursday showed Greece’s conservatives had widened their lead over socialist coalition partners ahead of elections expected in April, but they would not win an absolute majority if elections were held now.(news)
Eurogroup chairman Jean-Claude Juncker was quoted in a German newspaper as saying the euro zone would probably have to support Greece longer than expected — more than 10 years.

(Additional reporting by Sarah White and Sophie Sassard in London, Paul Taylor and Axel Threlfall in Davos, Harry Papachristou, Tatiana Fragou, Renee Maltezou and Karolina Tagaris in Athens; Writing by Deepa Babington; Editing by Dan Grebler) Messaging: deepa.babington.reuters.com@reuters.net)

ECB role under scrutiny as Greek debt talks resume

By George Georgiopoulos and Lefteris Papadimas
ATHENS, Jan 26 (Reuters) – Greece’s tortuous negotiations over a debt swap with private creditors honed in on Thursday on demands that the European Central Bank contribute to a deal to bring Athens’ messy finances back on track.

Talks betweenAthens, which needs a deal quickly to avert a chaotic default when a major bond redemption comes due in March, and representatives for private creditors resume Thursday evening with the aim of sealing an agreement within a few days.

After weeksof wrangling over the coupon, or interest rate, Greece must pay on new bonds it will swap for existing debt, attention has shifted to whether the ECB and other public creditors will follow private bondholders in swallowing losses.

A day afterInternational Monetary Fund chief Christine Lagarde said the ECB may need to accept losses on its Greek holdings, the European Union’s top economic official also warned more public money will be needed to make up a shortfall in the country’s secondbailout.(news)
EU Economic and Monetary Affairs Commissioner Olli Rehn told Reuters “there is likely to be some increased need of official sector funding, but not anything dramatic.” It was the first time a top EU official had confirmedmore public money than a 130 billion euro package would be required to rescue Greece.

Private bondholders want others who bought bonds, and in particular the ECB which is Athens’ single biggest creditor, to take part in the swap — known as thePrivate Sector Involvement — that will make them write down the value of their holdings by 50 percent nominally, with real losses that are far higher.

“It would be outrageous if the ECB doesn’t take part in the PSI as keeping their Greek bondsto maturity would allow them to make a profit, while everybody else is taking 70 percent (losses) or even more,” one source close to the talks said.

The ECB had ruled out taking voluntary losses on its Greek bond holdings but is now debatinghow it would handle any forced losses and whether to explore legal options to avoid such a hit, central bank sources told Reuters on Wednesday. (news)
The ECB, which owns roughly 40 billion euros worth of Greek bonds, is no closer toagreeing on whether or not it will take losses on the Greek bonds it owns after a late night Wednesday meeting, euro zone central bank sources told Reuters.

Either way, at the very latest a debt deal must be clinched a month before 14.5 billioneuros of bond redemptions fall due on March 20, the source said, i.e., in just over three weeks.

If a deal is not reached by then, Greece could sink into an uncontrolled default that would trigger a banking crisis spreading contagion through theeuro zone, though the ECB’s creation of nearly half a trillion euros of three-year money for the banks in December has tempered that fear.

High debtor Italy saw its government bond yields and the cost of insuring against a default fall onThursday, helped by solid demand for short-term debt at an auction. (news)

COUPON STUMBLE
So far the interest rate, or coupon, on the new bonds had been the main stumbling block in the negotiations.

On Monday, euro zone ministers rejected the creditors’ offer of a 4 percent coupon on new bonds after Greece and its EU/IMF lenders held out for a 3.5 percent interest rate. They want to ensure the country’s debt falls to a target of 120 percent of GDP by 2020, from around 160 percent now.

A second source familiar with the negotiations said the “coupon is parked for current time until we can get closer on detail of the overall package”. Asked if that would include the ECB, the source said: “We wouldexpect it to, still to be determined though.”

Greek bankers and government officials said they had not heard of any new proposal from creditors, after local media reported they were willing to improve their “final offer” of a 4 percentinterest rate on the new bonds to about 3.75 percent.

One Greek daily, Kerdos, said participation of public sector creditors including the ECB in the swap deal was a pre-condition for that offer. (news)
“Until last week, we knewthat the steering committee was authorised to concede up to 3.8 percent for the average coupon,” one senior Greek banker told Reuters.

“But things are once again up in the air. You have to deal with politicians and 15 different governments asking for different things.”

Charles Dallara, chief of the Institute of International Finance that leads negotiations on behalf of private creditors, is due to meet Prime Minister Lucas Papademos at 1800 GMT. Dallara left Athens over the weekendafter the last round of talks proved inconclusive.

The IIF has said Thursday’s discussions will be “informal” and aim to sort out legal and technical issues quickly. German Chancellor Angela Merkel said the debt swap talks were on a “good path”. (news)
Senior EU, IMF and ECB officials are holding talks with the Greek government in parallel with the debt swap talks, to flesh out a new 130-billion euro bailout for Greece. They have warned they need the debt swap to cut Greece’sdebt substantially in order to go ahead with the new loans.

Talks with the “troika” inspectors on the new bailout programme are expected to go well into next week.

Germany does not expect the troika of foreign lenders to deliver a report on Greece’s progress before a summit of European Union leaders on Monday, a senior German official said on Thursday, adding that this meant that Greece would not play a major role at the EU leaders summit. (news)
Greece has made littleprogress on reforms as it stumbles through its worst post-World War II economic crisis. The task facing the country has been made harder with anger against austerity measures and squabbling politicians running high.

A poll on Thursday showedGreece’s conservatives had widened their lead over socialist coalition partners ahead of elections expected in April, but they would not win an absolute majority if elections were held now. (news)
(Additional reporting by Sarah White and Sophie Sassard in London, Paul Taylor and Axel Threlfall in Davos, Harry Papachristou and Tatiana Fragou in Athens, Eva Kuehnen, Marc Jones and Andreas Framke in Frankfurt,; Writing by Deepa Babington. Editing by Jeremy Gaunt.) Messaging: deepa.babington.reuters.com@reuters.net)

UPDATE: France, Austria Borrowing Costs Stable Post Downgrades

By Art Patnaude and Serena Ruffoni
Of DOW JONES NEWSWIRES

LONDON (Dow Jones)–Borrowing costs for France and Austria were hardly moved Monday after their triple-A credit ratings were stripped late Friday by Standard and Poor’s Corp., with market participants having anticipated the decision for over a month helping mute the reaction.

S&P cut the debt ratings of France and Austria by one notch to AA+, as well as downgrading five other European countries including Italy, Spain and Portugal, blaming in part the inability of European leaders to address the region’s sovereign debt crisis.

“This rating action was largely priced in if we look at the current spread levels,” said Alessandro Giansanti, rates strategist at ING Bank.

France’s benchmark 10-year government bond was yielding around 3.07%, unchanged from the close Friday, according to Tradeweb. Austria’s 10-year bond was one basis point higher, yielding around 3.17%.

S&P warned Dec. 8 it was mulling the downgrade of a total of 15 euro-zone countries, adding that it expected to make its decision “as soon as possible” after the summit of euro-zone leaders Dec. 9.

“The extent of the downgrades… was pretty much in line with expectations, and so the market impact should be modest,” said Chris Scicluna, analyst at Daiwa Capital Markets.

The cost of insuring the countries’ debt edged higher. France’s five-year credit default swap was five basis points wider at 222 basis points, while Austria’s five-year CDS was nine basis points wider at 224 basis points, according to data-provider Markit.

Credit default swaps are derivatives that function like an insurance contract for debt. If a borrower defaults, sellers compensate buyers.

While market reaction was relatively muted, analysts pointed out that the decisions highlight the depth of the euro-zone crisis; Greece remains in negotiations ahead of a crucial bond redemption on March 20, the region’s banking system is still reliant on the European Central Bank for liquidity, and uncertainties abound regarding plans for funding future bailouts.

The moves on France and Austria mean S&P is likely to follow with a downgrade of the euro-zone’s temporary bailout fund, the European Financial Stability Facility, for which the two countries are part of the guarantee structure that backs up its AAA-rating.

The other two major rating companies–Moody’ s Investors Service Inc. and Fitch Ratings–have triple-A ratings on France, Austria and the EFSF.

-By Art Patnaude and Serena Ruffoni, Dow Jones Newswires; +44 (0) 207 842 9259; art.patnaude@dowjones.com

Greece To Resume Debt Talks Wed Amid Difficulties

ATHENS — Talks between Greece and its private creditors over a planned debt restructuring will likely resume next Wednesday, a senior government official said Friday, amid signs that the negotiations had stalled over key elements of a deal.

After two days of high-level discussions, bankers negotiating the deal said the talks were on hold because of growing concerns Greece might force through an onerous debt write down on unwilling bondholders, scuttling hopes of a voluntary agreement.

“Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach,” the Institute for International Finance, a trade body of leading banks which is negotiating the deal, said in a statement.

It called on Greece, along with its eurozone partners, to “re-engage constructively with the private sector” on a “mutually acceptable agreement on a voluntary debt exchange.”

Greece’s European partners agreed in late October to cover the country’s budget deficits over the next three years, but insisted that private creditors share in the pain by writing off half the debt Greece owes them.

That debt restructuring would slice roughly EUR100 billion ($128.1 billion) off of Greece’s total public debt–now estimated around EUR360 billion–and would save the government about EUR5 billion a year in debt-servicing costs.

But how the debt restructuring–and by extension the amount of money Greece’s European partners and the International Monetary Fund–will pony up depends on many of the country’s private creditors signing on to the debt write down.

Meanwhile, the clock is ticking. Greece faces a mammoth EUR14.5 billion bond redemption in March and is depending on further European and International Monetary Fund financing just to stay afloat.

“The point is that this exercise has to be completed before the next European Union summit at the end of January so the creditors know how much more Greece needs,” said a senior government official.

So far the talks have focused on a deal that would exchange old bonds for new ones with maturities ranging between 20 and 30 years and a coupon of 4% to 5%. The bankers have been asking for a better yield, while there are hints Greece may be pushing for less.

And there are signs that a large number of creditors–among them hedge funds and other investors not represented by the bankers group–may be holding out for a better deal.

“It’s mainly hedge funds, which are estimated to hold more than EUR70 billion in Greek bonds,” said a second senior Greek government official.

If a large portion of those creditors don’t sign up, Greece warned Friday it could force a deal on the holdouts. In a radio interview, spokesman Pantelis Kapsis said that Greece is planning legislation that could force resistant bond holders into an involuntary debt exchange if a majority of private creditors agree to such a swap with the Athens.

The legislation would introduce collective action clauses into Greek government bond contracts, and could be used as a tool by the administration to ensure 100% participation in the debt-restructuring plan.

“I don’t think it will be today. But that such a change will be introduced, that is true,” Mr. Kapsis said.

But he added that no decision had yet been made on whether to activate the collective action clauses and force involuntary participation, saying Greece must first await the outcome of the debt deal.

The legislation “provides for the legal possibility to insert these clauses,” Kapsis added. “We will take a look at the final agreement and at that point we will comment.”

By Alkman Granitsas, Stelios Bouras and Costas Paris, Dow Jones Newswires; +30 210 331 2881; alkman.granitsas@dowjones.com

(Matina Stevis in Brussels contributed to this article)