Greece sent senior officials to Washington on Monday for meetings with the International Monetary Fund as it raced against the clock to break a deadlock in debt swap talks that has raised fears of an unruly default.
Barely a month after an injection of bailout funds helped avert bankruptcy, Greece is back at the centre of the euro zone crisis as fears of a default and a subsequent euro zone exit overshadow a mass credit downgrade of euro zone countries.
Cash-strapped Athens needs a deal with the private sector within days to avoid going bankrupt when 14.5 billion euros of bond redemptions fall due in late March.
But talks with its creditor banks broke down on Friday over the interest rate and a plan to enforce investor losses and are not expected to resume until Wednesday.
Greece put a brave face on the standoff.
There is a little pause in these discussions, Greek Prime Minister Lucas Papademos told CNBC television.
But I am confident that they will continue and we will reach an agreement that is mutually acceptable in time.
He expressed optimism that talks on both the debt swap and the latest bailout would be completed in two to three weeks.
But Athens is quickly running out of time on the bond swap front. A deal must be sealed before senior inspectors from the EU, IMF and ECB troika arrive in Athens at the end of the week to agree details of a second, 130-billion-euro bailout.
Furthermore, an agreement in principle is needed by the end of this week if it is to be finalized in time for the March bond redemptions, Charles Dallara, head of the Institute of International Finance who represents Greece's private creditors, told the Financial Times.
Banking sources say Athens is not the problem in the talks, pointing the finger at terms insisted on by the so-called troika of EU, ECB and IMF lenders keeping Greece afloat with aid.
In a bid to resolve the impasse, a government source said the head of Greece's debt agency and a senior adviser were travelling on Monday to Washington to meet IMF officials - just a day before a team of technical experts from the troika arrives in the Greek capital.
Under the bailout terms agreed in October, Greek privately held debt would be reduced by half so that, together with structural reforms, the overall debt-to-GDP ratio of Greece would fall to 120 percent in 2020 from 160 percent now.
After initial optimism last week that a deal was near, negotiations stalled on Friday over the interest rate Greece must pay on new bonds it offers.
One banking source said official sector creditors had asked for a coupon of less than 4 percent, irking banks for whom it would have meant losses of over 75 percent on the bonds.
A second source involved in the discussions said the troika had pushed for a coupon of 2 to 3 percent that banks deemed unacceptable, below the 4 percent level that Greece and France proposed. Banks considered a 4 to 5 percent coupon sustainable for Greece, the source said.
Without a more palatable offer, the level of participation among private creditors could slip to below the level needed to ensure the deal is considered voluntary, the source said.
They've got to understand that a voluntary exchange has got to be something we can stomach, said a third source close to the talks.
A fourth source said the banks were ready to strike a deal if they reached common ground with the EU, IMF and ECB.
Underlining the precariousness of the situation, British finance minister George Osborne warned uncertainty over fixing Greece's debt crisis was more of a threat to Europe's stability than the downgrade on Friday of nine euro zone countries' credit ratings by Standard & Poor's.
The downgrades were largely expected and traders said pressure on Italian and Spanish bond yields on Monday were offset by the European Central Bank stepping in to buy the bonds.
But Bill Gross, the manager of the world's largest bond fund PIMCO, said in a Twitter post the downgrades had made investors aware that countries can default and that Greece would be the next example.
MORE MONEY NEEDED?
In its fifth year of recession, Greece has repeatedly flirted with bankruptcy in recent months, with only bailout loans from European partners and the IMF agreed on condition of unpopular austerity measures preventing a default.
The latest impasse in talks has prompted fears that Greece may need further financial support to put its debt on a viable footing. Papademos played down speculation that Athens would need additional aid to that agreed in October.
I think the funds that have been pledged at the Euro Summit, combined with the outcome of the private sector involvement process should be sufficient in order to support financially the Greek economy, Papademos said.
Pledging more funds to Greece would be politically tricky for many euro zone countries struggling with economic problems of their own. Germany's foreign minister, on a trip to Athens, warned Greece must show it was honoring its end of the deal.
We don't want only a hint of a temporary recovery supported by banknotes, German Foreign Minister Guido Westerwelle said in an interview to be aired on Greek Skai television later on Monday. We want structural reforms so that Europe does not face a similar situation in the future.
(Additional reporting by Sophie Sassard and Tommy Wilkes in London, George Georgiopoulos and Karolina Tagaris in Athens,; Writing by Deepa Babington)