Greece goes head to head with its creditors on Wednesday in a renewed attempt to break a deadlock in negotiations to slash the country's debt and stave off default.
International private sector creditors represented by the Institute of International Finance (IIF) were set to meet the government in the afternoon. Talks broke down on Friday over the interest rate Greece will offer on new bonds and a plan to enforce investor losses.
Ratcheting up pressure on hedge funds and other holders of Greek debt ahead of the talks, Prime Minister Lucas Papademos told the New York Times he will consider legislation forcing creditors to take losses on their holdings if no agreement can be reached.
Papademos said that if Greece did not receive 100 percent participation in a program in which bondholders would voluntarily write down $130 billion (84.7 billion pounds) from Greece's $450 billion debt, the country would consider passing a law to require the holdouts to take losses.
It is something that has to be considered in the light of expectations about the degree of the participation to be achieved, Papademos was quoted as saying in an interview.
It cannot be excluded. It is contingent on the percentage, he said, while noting that he still expected the talks to be completed successfully.
Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when 14.5 billion euros ($18.5 billion) of bond redemptions fall due in late March.
The IIF said on Tuesday its managing director and co-chairman of the private investor creditor steering committee for Greece, Charles Dallara, and Jean Lemierre, special adviser to the chairman, would resume discussions with the Greek government.
They reiterated their commitment to seeking an agreement on a voluntary debt exchange for Greece and encouraged all parties to work in good faith toward this end with a sense of urgency, the IIF said.
Hedge funds holding Greek bonds that mature in March may have the strongest hand.
The Greek government wants to swap out that maturing debt for new, lower-yielding bonds and a small cash payment. But some hedge funds in London and New York that have snapped up chunks of Greece's next big maturing bond, the March 2012, for around 40 cents on the euro, are balking.
A team of European Union, International Monetary Fund and European Central Bank officials are already combing through Greece's books as part of efforts to put together a 130-billion-euro rescue package the country needs to stay afloat.
The debt swap deal would see creditors voluntarily giving up at least 50 percent of their promised returns. Without it, the EU and IMF have warned they will consider that Greek debt is not back on a sustainable track and will not release further aid.
The stumbling block in the negotiations has been the low coupon, or interest payment, offered on the new bonds. It could take investor losses well over the 50 percent originally envisaged in the voluntary writedown.
Bloomberg News quoted a U.S. hedge fund manager as saying that Greece was nearing a deal with private creditors that would give them cash and securities with a market value of about 32 cents per euro of government debt.
Bloomberg said Bruce Richards, chief executive officer of New York-based Marathon Asset Management LP which is a member of a Greek creditors' committee, told the news agency in an interview that he was highly confident the deal will get done.
No one was immediately available at Marathon to confirm the comments.
ANGER ON STREETS
Ordinary Greeks have been hit hard by the tax increases and spending cuts which were part of a first bailout agreed in 2010.
They now fear more austerity and wage cuts with the second bailout and say they cannot take more belt-tightening.
Greece has entered its fifth consecutive year of austerity-fuelled recession, with unemployment reaching a record high of 17.7 percent in the third quarter of 2011.
Resentment of outsiders is evident.
We want them to get lost. They are pushing the country towards collapse with these measures. They are selling off Greece, said Yannis Tsalimoglou, a 51-year old dockworker, whose income has taken a 30-percent hit with the crisis.
Thousands marched to parliament on Tuesday to protest against austerity, waving banners reading EU, IMF out! ($1 = 0.7851 euros)
(Writing by Jeremy Gaunt; Editing by Stephen Nisbet and David Stamp)