Greece expects to clinch a long-awaited bond swap deal within days, Prime Minister Lucas Papademos told Reuters Friday, promising the country would avoid an unruly default feared by financial markets worldwide.

But in a sign that Greece's troubles will be far from over even with a deal, a report showed that the European Union and IMF want Greece to push through more budget cuts and austerity reforms before they sign off on a new bailout package.

The bond swap talks with private creditors made significant progress on legal and technical issues and will continue Saturday, both sides said late Friday.

A preliminary deal could be sealed by Sunday evening, a Greek government official said, with the aim of submitting a public offer to bondholders by February 15.

We made significant progress over the last few weeks and in the last few days in particular. We are trying to conclude the discussions as quickly as possible, Papademos said in an interview. I am quite optimistic an agreement will be reached in the coming days.

Athens needs to seal the bond swap deal quickly to ensure it gets bailout funds before massive bond redemptions come due in late March. Under such a deal private creditors would have to accept a sharp cut in the value of their bond holdings, easing Greece's debt burden.

Round after round of talks have failed to produce an agreement so far, pushing Greece precariously close to a messy default that could trigger panic through the financial system.

EU economic and monetary affairs chief Olli Rehn also sounded optimistic, saying an agreement was very close and might be clinched as soon as this weekend.

Even after a deal with private creditors, Greece would still need to persuade its euro zone partners and the International Monetary Fund that it is doing enough to implement reforms they require in return for a 130 billion euro bailout.

To do so, Greece will have to make extra spending cuts worth 1 percent of GDP - or just above 2 billion euros - this year, according to a preliminary estimate drawn up by the EU and the IMF in a document outlining the reforms Athens should enact.

Finance Minister Evangelos Venizelos acknowledged that talks with the IMF, European Commission and European Central Bank on the bailout were tough and that Greece was in a difficult position because it had lost credibility abroad.

Greece has not only to commit itself, Greece has to deliver. Not all of the commitments have been fulfilled. That is one of the critical issues to confidence, German Finance Minister Wolfgang Schaeuble said at the annual World Economic Forum in Davos.

Also in Davos, U.S. Treasury Secretary Timothy Geithner pressed the euro zone to boost its bailout fund resources to allow it to shield larger economies such as Italy and Spain.

Our view is that the only way Europe is going to be successful in holding this together is for them to bring a stronger firewall and that is going to demand a bigger commitment, Geithner told the Forum.

Also Friday the Fitch agency downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain, indicating there was a 1-in-2 chance of further cuts in the next two years. It cited their vulnerability in the near-term to monetary and financial shocks.


Greece's partners have grown increasingly exasperated with its repeated fiscal slippages and delays on reforms, and they want to see progress before they wrap up the country's second multi-billion euro bailout in three years.

Parliamentary elections which could be held as early as April are distracting politicians and officials from enacting the unpopular austerity reforms, sources close to the talks say.

Greece's lenders are worried about whether a new government would stick to reforms and Schaeuble has said all parties must commit to them, no matter who wins the election.

Far-right leader George Karatzaferis, whose party also belongs to the coalition government, said Friday that the lenders should not push Greece too far, particularly by asking all of its party leaders to commit in writing to excessive demands.

No-one should expect a signature of subservience, Karatzaferis said in parliament. Yes, we assume our obligations but we will not bow to ultimate disgrace.

Top of the list of measures demanded by the EU, IMF and ECB - known as the troika - in return for aid is the passing of a supplementary budget with more cuts to reach fiscal targets in 2012. The troika suggests large spending cuts in defense and health spending as well as cutting redundant state entities.

The EU and IMF are pressing Greece to adopt a much-delayed reform of supplementary pensions and to ensure that a plan to replace only one out of five civil servants leaving the workforce is enacted.

They also want Greece to complete the opening up of its many closed professions such as lawyers and pharmacists, which they have been demanding for years, the document shows.

Likewise they want the Bank of Greece to complete an assessment of banks' capital shortfall and they expect the government to enact legislation to improve wage flexibility and liberalize product and service markets more, the document said.

The list of measures is not final and could change after discussions with the Greek authorities, the document says. Troika inspectors are in Athens to discuss this, with talks on the new program expected to go well into next week.

Government spokesman Pantelis Kapsis said the government would try to negotiate on some of the points on the list but repeated that Athens needed the bailout loans to stay afloat.

Asked if Greece would default without the aid, he told Skai TV: It's obvious, if we don't get the loan, how are we going to find the money?

Germany is also pushing for Greece to relinquish control over its budget policy to European institutions as part of discussions on the rescue package, a European source told Reuters Friday.

Budget data published Friday showed the size of the problem. The general government deficit, the benchmark for fiscal targets, reached 17.14 billion euros for the first nine months of the year, already just exceeding an initial 17.1 billion euro target for the full year.

The emerging private sector bond swap deal seems set to leave a funding gap of 12-15 billion euros to bring Greece's debt down to a level of 120 percent of annual output regarded by the IMF as sustainable, EU officials say.

Deutsche Bank Chief Executive Josef Ackermann confirmed that private creditors have offered to take losses of almost 70 percent in the debt swap.

(Additional reporting by George Georgiopoulos and Karolina Tagaris in Athens, Paul Taylor in Davos, Andreas Framke in Frankfurt and Annika Breidthardt in Brussels, writing by Deepa Babington and Ingrid Melander; editing by David Stamp)