Greece moved closer to wrapping up its bond swap with private investors on Thursday, indicating that it had already cleared a vital threshold needed to pass a deal which will hand bondholders steep cuts in the value of their investments.
With less than three hours to go before the 2000 GMT deadline on the biggest sovereign debt restructuring in history, a senior official said the government had acceptances covering more than 75 percent of bonds eligible to take part in the offer.
Finance Minister Evangelos Venizelos told cabinet the deal was on track and no surprises were expected, a minister told reporters after the meeting chaired by Prime Minister Lucas Papademos.
I look forward to maximum participation by the private sector, which will contribute significantly to the effort to adjust and restore our economy, Papademos said, according to a statement from his office.
Greece had said that it would abandon the deal if it did not receive at least 75 percent participation in the offer and it required two-thirds take-up to deploy a legal device to force the bulk of any recalcitrant creditors to accept the terms.
Major banks and pension funds have agreed to accept cuts of around 74 percent in the value of their holdings in exchange for new bonds as part of a deal that will cut more than 100 billion euros from Greece's massive public debt.
The private sector involvement (PSI) deal is a key element in a broader international bailout aimed at averting a chaotic default by Greece and a potentially disastrous banking crisis across the euro zone.
If all goes well, tomorrow we will be able to announce that a debt burden of 105 billion euros has been lifted from the Greek people, Venizelos told parliament earlier in the day. For the first time we are cutting debt instead of adding to it.
One of the chief negotiators for the bondholders, Charles Dallara, said he was optimistic the swap would succeed and predicted a very high participation rate, though he was unsure if it would hit the 90 percent level Greece is aiming for.
Results of the exchange are expected to be announced on a Greek finance ministry website at 0600 GMT on Friday.
FACTBOX-Private sector take-up of debt swap
Euro zone debt crisis graphics http://r.reuters.com/hyb65p
Financial markets picked up on the optimism, with bank stocks rising sharply and the risk premium on Italian and Spanish government bonds falling as investors hoped a Greek deal would curb the likelihood of any contagion spreading to other weaker euro zone economies.
The European Union and International Monetary Fund have made a successful bond swap a pre-condition for final approval of the 130 billion euros ($170 billion) bailout agreed last month.
Euro zone ministers could decide whether to clear the package in a conference call on Friday afternoon although they may leave the final decision until a face-to-face meeting on Monday.
Greece must have the bailout deal in place by March 20 when some 14.5 billion euros of bonds are due, which it cannot hope to repay alone.
With over 75 percent take-up secured, well above the required two thirds threshold, Athens should be able to apply collective action clauses (CAC) imposing the deal on all holders of 177 billion euros in bonds regulated by Greek law.
The acceptance will likely end up close to 80 percent and then CACs will be activated, after Greece consults with the Eurogroup, predicted a senior banker, who declined to be named. Numbers are building up as they usually do on the last day.
Athens faces a more complex problem with some 18 billion euros in bonds regulated under international law with a number of hedge funds expected to try to fight a deal in the courts.
It also remains to be seen whether credit default swaps (CDS) which some investors have taken as insurance against a forced restructuring of the debt will be paid out.
Athens has staggered from deadline to deadline since the crisis broke two years ago and several of its international partners have expressed open doubts about whether its second major bailout in two years will be the last.
Underlining the severe problems facing Greece after five years of deep recession, data on Thursday showed unemployment running at a record 21 percent in December, twice the euro zone average, with 51 percent of young people without a job.
There has been growing resentment in Greece over the austerity medicine ordered by international creditors which has compounded the pain from a slump which has seen the economy shrink by a fifth since 2008.
But Greece, totally reliant on international support to stave off a default that could set off a banking crisis across the euro zone, has also infuriated both the EU and the IMF with its repeated failure to push through promised reforms.
We have shown a lot of solidarity with Greece, German Finance Minister Wolfgang Schaeuble said late on Wednesday. Everyone knows that the real problems of Greek society are in Greece and not abroad. ($1 = 0.7625 euros)
(Additional reporting by Harry Papachristou and Angeliki Koutantou, writing by James Mackenzie; editing by Mike Peacock/Anna Willard)