Post date: Jan 27, 2012 5:59:13 PM
A deal between Greece and its private creditors is seen as "very close" says EU economic and monetary affairs chief Olli Rehn, as the EU and IMF push Athens to implement more reforms to get its second bailout package.
GREECE-DEBT DEAL - International inspectors from the European Union and International Monetary Fund are continuning their talks with Greece.
A report obtained by Reuters shows they want Athens to push through more budget cuts and implement long-planned austerity reforms before the agree on the second 130 billion euro bailout that Greece needs to avoid going bankrupt in March.
For weeks, the markets have been focussing on Greece's lengthy talks with its private creditors.
The EU's economic and monetary affairs chief Olli Rehn told an audience at the World Economic Forum in Davos on Friday agreement was close.
SOUNDBITE: Olli Rehn, EU Economic and Monetary Affairs Commissioner, saying (English):
"We are just about to close a deal on a private sector involvement between the Greek government and the private creditor community, if not today, maybe over the weekend but in any case, preferably still in January rather than in February."
Once the private sector deal is sealed, Greece still has to convince its euro zone partners and the IMF that it's doing enough, especially in reforming the labour market, to receive the next installment of aid, needed to avoid a chaotic default.
Athens' partners have grown tired of its delaying of reforms, but the country's opposition parties - and the people - are opposed to any more austerity.
Analysts don't expect the EU to leave Greece in the lurch says Tobias Blattner from Daiwa Capital Markets.
SOUNBITE: Tobias Blattner, European Economist at Daiwa Capital Markets, saying (English):
"We all know that the costs of a disorderly Greek default, or even a forced restructuring would be very, very high, so I think it's probably up to the euro area governments now to eventually fill any gap that might arise if the private bondholders would not come to the same kind of agreement that the IMF would want it to, so I think the chances of a second bailout package are very, very high."
But investors aren't feeling quite so optimistic.
The length of time taken for talks between Greece and its private sector bondholders has been weighing on the markets.
While news a deal is close helped Italian and Spanish bond yields, Portugal has been bucking the trend.
Portuguese government bond yields hit new euro-era highs, and the ECB has stepped in to buy the country's debt, as worries grow Lisbon could follow Athens into requiring a second bailout.
Joanna Partridge, Reuters