Euro zone seals second Greek bailout

BRUSSELS (Reuters) - Euro zone finance ministers sealed on Tuesday a second bailout for debt-laden Greece that will resolve its immediate financing needs but seems unlikely to revive the nation's shattered economy.

After a marathon 13 hours of talks, euro zone officials said ministers had nailed measures to cut Greece's debt to around 121 percent of gross domestic product by 2020, close to their original target of 120, after negotiators for private bondholders offered to accept a bigger loss to help plug the funding gap.

Agreement on a 130-billion-euro rescue package with strict conditions attached will help draw a line under months of uncertainty that has shaken the currency bloc, and avert an imminent Greek bankruptcy.

"The financial volume (of the Greek package) is 130 billion euros and debt-to-GDP (will be) 121 percent. Now it's down to work on the statement," one official involved in the negotiations told Reuters. Another confirmed the two figures.

The euro jumped almost half a cent, reversing earlier losses, after Reuters reported a deal had been struck.

A report prepared for ministers by EU, European Central Bank and IMF experts, obtained exclusively by Reuters, said Greece would need extra relief to cut its debts near to the official debt target 2020 given the ever-worsening state of its economy.

If Athens did not follow through on economic reforms and savings, its debt could hit 160 percent by that date.

"Given the risks, the Greek program may thus remain accident-prone, with questions about sustainability hanging over it," the 9-page confidential report said, highlighting the fact that Greece's problems are far from over.

The accord will enable Athens to launch a bond swap with private investors to help reduce and restructure its vast debts, put it on a more stable financial footing and keep it inside the 17-country euro zone.

Around 100 billion euros of debt will be written off as banks and insurers swap bonds they hold for longer-dated securities that pay a lower coupon.

Private sector holders of Greek debt are expected to take losses of 53.5 percent or more on the nominal value of their bonds. Previously they had agreed to a 50 percent nominal writedown, which equated to around a 70 percent loss on the net present value of the bonds.

The debt sustainability report delivered to ministers last week showed that without further measures Greek debt would only fall to 129 percent by 2020.

The IMF had said if the ratio was not cut to near 120 percent, it may not have been able to help finance the bailout, putting the whole scheme in jeopardy.

To help fill the financing gap, one senior euro zone source said the ECB would pass up profits it has made from buying Greek bonds over the past two years under its emergency bond-buying program.

The ECB has spent about 38 billion euros on Greek government debt that is now worth about 50 billion euros. By forgoing that profit and redistributing it to national euro zone central banks, the ECB can indirectly provide debt relief to Athens.

Whatever its constituent parts, economists say the deal may only delay a deeper default by a few months. A turnaround could take as much as a decade, a prospect that brought thousands of Greeks onto the streets to protest against austerity measures on Sunday.

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DOUBTS OVER COMMITMENT

Skeptics question whether a new Greek government will stick to the deeply unpopular program after elections due in April, and believe Athens could again fall behind in implementation, prompting exasperated lenders to pull the plug once the euro zone has stronger financial firewalls in place.

While there are doubts in Germany and other countries that Greece will be able to meet its commitments, including implementing 3.3 billion euros of spending cuts and tax increases, the threat of contagion from a chaotic Greek default always made a deal more likely than not, no matter how tortuous the negotiations.

Greek Prime Minister Lucas Papademos, International Monetary Fund Managing Director Christine Lagarde and ECB President Mario Draghi all attended the Brussels talks in a sign they were likely to be decisive.

The private creditor bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and ensure Greece's banking system remains stable: 30 billion euros will go to "sweeteners" to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks.

A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in. Next to nothing will go directly to help the Greek economy.

Those numbers could change in the final analysis given the scramble to meet the overall objective of reducing Greece's debts from 160 percent of GDP to around 120 by 2020.

The deal will provide immediate relief to Athens and financial markets but no one is pretending it will end Greece's problems. Figures last week showed its economy shrank 7 percent year-on-year in the last quarter of 2011, much more than expected, with further cuts likely to make matters worse.

The troika of European Commission, ECB and IMF, responsible for monitoring Greece's reform progress, carries out quarterly reviews and could decide Athens is not meeting its commitments at any one of them.

(Additional reporting by Luke Baker, Julien Toyer, Robin Emmott in Brussels, Daniel Flynn in Paris, Terri Kinnunen in Helsinki. Writing by Mike Peacock and Paul Taylor.)

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Greece awaits bailout decision but issues remain

BRUSSELS (AP) — Eurozone governments hoped to sign off on Monday a long-awaited rescue package for Greece, saving it from a potentially calamitous bankruptcy next month, but several key points of division remained, senior officials said.

Finance ministers meeting in Brussels were still wrangling over how to further reduce Greece's debt load and impose even tighter control over the country's spending, and the meeting was expected to stretch late into the night. Rich countries like Germany and the Netherlands and the International Monetary Fund want to be sure that Athens can eventually survive without aid.

But after months of delays, time for Greece is running out. The country needs to secure the euro130 billion ($170 billion) bailout so it can move ahead with a related euro100 billion ($130 billion) debt relief deal with private investors. That deal needs to be in place quickly if Athens is to avoid a disorderly default on a bond repayment on March 20.

"I am of the opinion that today we have to deliver, because we don't have any more time," Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said as he arrived in Brussels.

An uncontrolled bankruptcy would likely force Greece to leave the 17-country currency union and return to its old currency, the drachma, further shaking its already beaten economy and creating uncertainty across Europe.

Heading into the meeting, ministers were optimistic that a deal could be reached.

"We now have all of the elements to achieve an agreement," said French Finance Minister Francois Baroin. "Greece knows what it has to do, and we'll watch over it continually. We also know what we have to do."

But the finance ministers were also negotiating on several fronts, trying to move Greece's other creditors to increase their commitments. Greek Prime Minister Lucas Papademos rushed to Brussels to back up his finance chief, Evangelos Venizelos, in talks with the IMF, the European Central Bank and representatives of private holders of Greek debt.

The goal is to bring Greece's debt down to around 120 percent of gross domestic product by 2020 — the maximum the IMF sees as sustainable. At the moment, the country's debt load stands at more than 160 percent.

Last week, a new report prepared by the European Commission, the ECB and the IMF concluded that the new bailout, Greek spending cuts, and a planned euro100 billion debt relief from private investors would still leave Greece's debt at almost 129 percent of economic output by the end of the decade.

Ministers were exploring several options to close that gap, but as talks dragged on Monday, no final solution appeared imminent.

A Greek official said Monday morning that there seemed to be agreement on further reducing the interest rate on Greece's first, euro110 billion bailout as well as having national central banks in the eurozone, which also hold some Greek bonds, participate in the debt relief. The official was speaking on condition of anonymity because the talks were confidential.

However, other officials questioned the participation of national central banks, as well as whether the ECB would be willing to transfer profits from its Greek bond holdings back to Athens.

On the sidelines of the finance ministers' meeting, Venizelos headed into a new round of talks with representatives of Greece's private bondholders — mostly banks and investment funds — to explore whether they would be willing to accept further losses.

A current plan foresees private creditors swapping their old Greek bonds for new ones with half the face value, lower interest rates and much longer repayment periods.

But now some countries are pushing for bondholders to also give up on an accrued interest payment of around euro5.5 billion on their old bonds, a demand that could further discourage investors from signing up to the debt swap.

Amid the ever-changing mood over the country's rescue, some frustration was setting in among the Greeks.

"Greece comes into today's Eurogroup meeting having fulfilled all the requirements for the approval of the new program," Venizelos said. "For Greeks, this is a matter of national dignity and a national strategic choice and no other integrated and responsible choice can be opposed to it."

The Greek parliament has faced down violent protests to approve the austerity measures demanded by the eurozone. Its main political leaders have committed in writing to uphold the bailout terms even after general elections in April. And later Monday, the government in Athens is expected to introduce in parliament another two pieces of emergency legislation, including wage and pension cuts.

Despite Athens' efforts, however, some countries have indicated their patience with Greece was growing short.

"We've seen that Greece time and time again fails to satisfy the conditions that the international community makes. ... In the Netherlands, it really is an issue that you have to lend money to a country that for the umpteenth time hasn't held itself to its agreements," said Jan Kees de Jager, the finance minister from the Netherlands, which has been especially hard on Greece. "So it's indeed essential to me, and also the Dutch government, that we have control over the money that we're going to lend."

To that end, Greece is expected to be forced to set up a separate account that would ensure it services its debt. This escrow account would give legal priority to debt and interest payments over paying for government services. That would maintain pressure on Greece to stick to promised austerity and reform measures and spare the eurozone the risk of a destabilizing default.

The escrow account would, however, be an unprecedented intrusion into a sovereign state's fiscal affairs and could ultimately see Greece forced to pay interest on its debt before paying salaries to teachers and doctors.

In addition, Greece's international creditors will station permanent representatives in Athens to monitor the country's progress.

Another issue under discussion is how much the IMF will contribute to the new rescue. The fund has provided one-third of the bailouts for Ireland and Portugal and Greece's first rescue package.

"The indication is that the figure will be rather low," a European Union official said, adding however that a final decision from the fund's board is still outstanding. The official was speaking on condition of anonymity because talks were not yet concluded.

Some worry that more austerity could exacerbate Greece's problems by putting a stranglehold on growth. Prime Ministers from a dozen European countries — including the U.K., Italy and the Netherlands — wrote a letter Monday to EU President Herman Van Rompuy and Commission President Jose Manuel Barroso calling for growth across the bloc.

"The crisis we are facing is also a crisis of growth," the letter said. "It is now time to show leadership and take bold decisions which will deliver results that our people are demanding."

___

Don Melvin in Brussels, Toby Sterling in Amsterdam, and Elena Becatoros and Derek Gatopoulos in Athens, Greece, contributed to this story.

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EU ministers work through night on Greece bailout

BRUSSELS (AP) — Eurozone governments worked into the night on Monday, hoping to agree on a long-awaited rescue package for Greece that would save it from a potentially calamitous bankruptcy next month, but several key points of division remained, senior officials said.

Finance ministers meeting in Brussels Monday were still wrangling over how to reduce Greece's debt load further and impose even tighter control over the country's spending, and negotiations were expected to stretch late into the night. Rich countries like Germany and the Netherlands and the International Monetary Fund want to be sure that Athens can eventually survive without aid.

But after months of delays, time for Greece is running out. The country needs to secure the €130 billion ($170 billion) bailout so it can move ahead with a related €100 billion ($130 billion) debt relief deal with private investors. That deal needs to be in place quickly if Athens is to avoid a disorderly default on a bond repayment on March 20.

"I am of the opinion that today we have to deliver, because we don't have any more time," Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said as he arrived in Brussels.

An uncontrolled bankruptcy would likely force Greece to leave the 17-country currency union and return to its old currency, the drachma, further shaking its already beaten economy and creating uncertainty across Europe.

Heading into the meeting earlier Monday, ministers were optimistic that a deal could be reached.

"We now have all of the elements to achieve an agreement," said French Finance Minister Francois Baroin. "Greece knows what it has to do, and we'll watch over it continually. We also know what we have to do."

But the finance ministers were also negotiating on several fronts, trying to move Greece's other creditors to increase their commitments. Greek Prime Minister Lucas Papademos rushed to Brussels to back up his finance chief, Evangelos Venizelos, in talks with the IMF, the European Central Bank and representatives of private holders of Greek debt.

The goal is to bring Greece's debt down to around 120 percent of gross domestic product by 2020 — the maximum the IMF sees as sustainable. At the moment, the country's debt load stands at more than 160 percent.

Last week, a new report prepared by the European Commission, the ECB and the IMF concluded that the new bailout, Greek spending cuts, and a planned €100 billion debt relief from private investors would still leave Greece's debt at almost 129 percent of economic output by the end of the decade.

Ministers were exploring several options to close that gap, but as talks dragged on Monday, no final solution appeared imminent.

A Greek official said Monday morning that there seemed to be agreement on further reducing the interest rate on Greece's first, €110 billion bailout as well as having national central banks in the eurozone, which also hold some Greek bonds, participate in the debt relief. The official was speaking on condition of anonymity because the talks were confidential.

However, other officials questioned the participation of national central banks, as well as whether the ECB would be willing to transfer profits from its Greek bond holdings back to Athens.

On the sidelines of the finance ministers' meeting, Venizelos headed into a new round of talks with representatives of Greece's private bondholders — mostly banks and investment funds — to explore whether they would be willing to accept further losses.

A current plan foresees private creditors swapping their old Greek bonds for new ones with half the face value, lower interest rates and much longer repayment periods.

But now some countries are pushing for bondholders to also give up on an accrued interest payment of around €5.5 billion on their old bonds, a demand that could further discourage investors from signing up to the debt swap.

Amid the ever-changing mood over the country's rescue, some frustration was setting in among the Greeks.

"Greece comes into today's Eurogroup meeting having fulfilled all the requirements for the approval of the new program," Venizelos said. "For Greeks, this is a matter of national dignity and a national strategic choice and no other integrated and responsible choice can be opposed to it."

The Greek parliament has faced down violent protests to approve the austerity measures demanded by the eurozone. Its main political leaders have committed in writing to uphold the bailout terms even after general elections in April. On Monday in Athens, the government introduced in parliament another two pieces of emergency legislation that would introduce austerity measures including wage and pension cuts.

Despite Athens' efforts, however, some countries have indicated their patience with Greece was growing short.

"We've seen that Greece time and time again fails to satisfy the conditions that the international community makes. ... In the Netherlands, it really is an issue that you have to lend money to a country that for the umpteenth time hasn't held itself to its agreements," said Jan Kees de Jager, the finance minister from the Netherlands, which has been especially hard on Greece. "So it's indeed essential to me, and also the Dutch government, that we have control over the money that we're going to lend."

To that end, Greece is expected to be forced to set up a separate account that would ensure it services its debt. This escrow account would give legal priority to debt and interest payments over paying for government services. That would maintain pressure on Greece to stick to promised austerity and reform measures and spare the eurozone the risk of a destabilizing default.

The escrow account would, however, be an unprecedented intrusion into a sovereign state's fiscal affairs and could ultimately see Greece forced to pay interest on its debt before paying salaries to teachers and doctors.

In addition, Greece's international creditors would station permanent representatives in Athens to monitor the country's progress.

Another issue under discussion is how much the IMF will contribute to the new rescue. The fund has provided one-third of the bailouts for Ireland and Portugal and Greece's first rescue package.

"The indication is that the figure will be rather low," a European Union official said, adding however that a final decision from the fund's board is still outstanding. The official was speaking on condition of anonymity because talks were not yet concluded.

Some worry that more austerity could exacerbate Greece's problems by putting a stranglehold on growth. Prime Ministers from a dozen European countries — including the U.K., Italy and the Netherlands — wrote a letter Monday to EU President Herman Van Rompuy and Commission President Jose Manuel Barroso calling for growth across the bloc.

"The crisis we are facing is also a crisis of growth," the letter said. "It is now time to show leadership and take bold decisions which will deliver results that our people are demanding."

___

Don Melvin in Brussels, Toby Sterling in Amsterdam, and Elena Becatoros and Derek Gatopoulos in Athens, Greece, contributed to this story.

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Decision day for second Greek bailout despite financing gaps

BRUSSELS (Reuters) - Euro zone finance ministers are expected to approve a second bailout for Greece on Monday to try to draw a line under months of uncertainty that has shaken the currency bloc, although there is work to be done to make the figures add up.

Diplomats and economists say they do not expect the package to resolve Greece's economic problems. That could take a decade or more, a bleak prospect that brought thousands of Greeks onto the streets to protest austerity measures again on Sunday.

The ministers need to agree new measures to square the numbers, given the ever-worsening state of the Greek economy. But they say an agreement on Monday will help restructure the country's vast debts, put it on a more stable financial footing and keep it inside the 17-country single currency zone.

Senior officials from euro zone finance ministries and the European Central Bank held a conference call on Sunday to go over the final details of the 130-billion-euro ($171-billion)program, including a debt sustainability analysis critical to the International Monetary Fund.

While there is skepticism in Germany and other countries that Greece will be able to live up to its commitments - including implementing 3.3 billion euros of spending cuts and tax increases - officials said momentum was building for approval of the deal.

French Finance Minister Francois Baroin said all the elements were in place to reach an agreement.

"It cannot wait any longer ... Greece has debt payments in March and could find itself in bankruptcy, something which France has been trying to avoid for the last 18 months," he told Europe 1 radio on Monday.

Finnish Finance Minister Jutta Urpilainen said Greece had done all that had been asked of it.

"There are many open details ... A big issue is that we have to get Greece's debt on a level that is sustainable and enables Greece to survive," she told reporters in Helsinki.

A euro zone official in contact with junior ministers involved in the Sunday conference call said the financing gaps were not so large that they risked derailing the whole process.

"I don't see anybody wanting to be responsible for pulling the plug on the deal at this late stage," he said.

"The gut feeling is that this is going to go through - everyone feels the pressure this time to deliver," he said, indicating that the Netherlands, Finland and Germany, which have been the most critical of Athens' ability to commit, looked likely to come on board if the financing gaps could be closed.

GREEK ANGER UNABATED

Several thousand Greeks demonstrated on Sunday against the austerity measures to reduce the country's debt, although the numbers were much lower than earlier protests.

Greek Prime Minister Lucas Papademos flew to Brussels for last-minute preparations as about 3,000 demonstrators massed on the capital's central Syntagma square.

Riot police shielded the national assembly to prevent a repeat of riots a week ago when masked youths torched buildings and looted shops across Athens.

Under one crucial element of the deal, Greece will have around 100 billion euros of debt written off via a restructuring involving private-sector holders of Greek government bonds.

Banks and insurers will swap bonds they hold for longer-dated securities that pay a lower coupon, resulting in a real 70 percent reduction in the value of the assets.

The bond exchange is expected to launch on March 8 and complete three days later, Athens said on Saturday. That means a 14.5-billion-euro bond repayment due on March 20 would be restructured, allowing Greece to avoid default.

The vast majority of the funds in the 130-billion-euro program will be used to finance the bond swap and to ensure that Greece's banking system remains stable: 30 billion euros will go to "sweeteners" to get the private sector to sign up to the swap, 23 billion will go to recapitalize Greek banks.

A further 35 billion will allow Greece to finance the buying back of the bonds, and 5.7 billion will go to paying off the interest accrued on the bonds being traded in.

The overall objective is to reduce Greece's debts from 160 percent of GDP to around 120 percent by 2020 - the figure and timeframe that the IMF, ECB and the European Commission, together known as the troika, have established as sustainable.

MEETING THE TARGET

The focus of Monday's finance ministers' meeting will be what "around 120 percent" means in practice.

A debt sustainability report delivered to euro zone finance ministers last week showed that under the main scenario, Greek debt will only fall to 129 percent by 2020.

The IMF has said if the ratio cannot be cut to around 120 percent, it may not be able to help finance the Greek program.

U.S. Treasury Secretary Tim Geithner urged the International Monetary Fund to support the program.

"This is a very strong and very difficult package of reforms, deserving of support of the international community and the IMF," Geithner said in a statement on Sunday.

As well as working to get the number down, there are moves to convince members of the troika that a debt level of 123-125 percent in 2020 would be sustainable.

"If we can get it down to 123 or 124 percent, I think everyone's going to be okay with that," the euro zone official said after the Sunday conference call. "Everyone will find a way to tweak the numbers."

A number of measures, including restructuring the accrued interest portion or reducing the "sweeteners," are being considered to move the figure closer to 120, a euro zone official familiar with the negotiations said.

There are also discussions about marginally lowering the interest rate on 110 billion euros of bilateral loans already made to Greece in May 2010 - the first package of support - to lighten the financing burden on Athens.

Central banks could help too.

The ECB is weighing up whether to allow Greek bonds held in euro zone central banks' investment portfolios to be subject to the same writedowns private investors are set to take, central bank sources told Reuters on Friday.

The central banks hold around 20 billion euros of Greek bonds in their traditional investment portfolios and the ECB holds about double that amount from its emergency bond-buying program. It has also signaled it could forego the profits made on the latter at some point.

If the finance ministers do succeed in reaching an agreement, it will provide immediate relief to Athens and financial markets, which have been kept guessing since the bailout package was announced last October.

But no one is pretending it will end Greece's problems. Figures last week showed its economy shrank 7 percent year-on-year in the last quarter of 2011, much more than expected, with further cuts likely to make matters worse.

The troika, responsible for monitoring Greece's reform progress, carries out quarterly reviews, while the European Commission will soon have dozens more monitors on the ground.

Already there is concern that at any one of those reviews of the new program - if it is approved on Monday - Greece will be found to be behind, especially if GDP continues to slump.

That will again raise the threat the country will have to default if it cannot meet its obligations, and invite questions about its ability to remain in the euro zone.

($1 = 0.7597 euros)

(Additional reporting by Daniel Flynn in Paris, Terri Kinnunen in Helsinki and George Georgiopoulos in Athens; writing by Mike Peacock; editing by Elizabeth Piper)

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Exclusive: Euro zone ponders delay of 2nd Greek bailout program

BRUSSELS (Reuters) - Euro zone finance officials are examining ways of delaying parts or even all of a second bailout program for Greece while still ensuring it avoids a disorderly default, several EU sources said on Wednesday.

The delays could possibly last until after Greece holds elections expected in April, they said, although it depends to what extent Greek political leaders make firm commitments on further spending cuts and labor reforms unpopular with voters.

While most elements of the package, which will total 130 billion euros, are in place, some euro zone finance ministers are not satisfied that all Greece's political party leaders are fully behind the reforms and so want legal guarantees.

It is also not clear that Greece's debt-to-GDP ratio, which currently stands at around 160 percent, will be cut to 120 percent by 2020 via the agreement, as demanded by the 'troika' of the European Commission, IMF and European Central Bank.

"There are proposals to delay the Greek package or to split it, so that an immediate default is avoided, but not everything is committed to," one official briefed on preparations for a euro zone finance ministers call later in the day told Reuters.

"They'll discuss the options," he said, adding: "There is pressure from several countries to hold off until there is a concrete commitment from Greece, which may not come until after they've held elections."

Under the "split" proposal, a debt swap agreement between Greece and private sector Greek bondholders could go ahead.

The process, which aims to cut Athens' debt burden by 100 billion euros via banks and insurers taking losses, was supposed to begin on Friday but is now likely to begin next week, depending on the outcome of talks among euro zone finance ministers in the coming days.

If successfully completed, the swap would allow Greece to meet a 14.5 billion euro bond redemption payment on March 20, which if missed would result in default.

But the bulk of the 130 billion euros bailout would be held back as leverage over Athens.

The euro slid to its lowest in more than a week against the dollar in response to the Reuters report and safe-haven German Bund futures rose to session highs.

Greece's conservative party leader Antonis Samaras, widely tipped as the country's next prime minister, pledged in writing that if elected he would stick to an agreed program of welfare and job cuts - a commitment demanded by euro zone ministers before they would agree to the new bailout.

"It is fair to say that my patience has run out," Dutch Finance Minister Jan Kees de Jager told U.S. National Public Radio. "We have to see the evidence of implementing the measure into law and just promises are not enough, not anymore."

One senior euro zone diplomat said the pressure being applied on Athens to meet its commitments seemed to be working, and suggested that as long as that held, more radical proposals for re-examining the second package may not be necessary.

"With every small piece of news that we get from Athens, the situation is becoming better. Whether it will hold all the way through, we can't know. They'll have to discuss that tonight and come back to it on Monday, I imagine."

Germany, Finland and the Netherlands are the countries pushing to delay the package, two other officials said, with Germany the most adamant and suggesting that final approval should only be granted after new elections are held.

Euro zone finance ministers began a conference call at 1600 GMT to discuss how to proceed. The call replaces a face-to-face meeting that was cancelled late on Tuesday because Greece had not provided sufficient commitments from its side.

Asked whether the package could be split, a spokesman for the European Commission said it was not yet decided.

"Up until now in the discussions, this has always been treated as an entire package," Amadeu Altafaj, spokesman on economic and monetary affairs told reporters, adding specifically on the private-sector portion:

"Up until now, that's never been separated out. Now what will happen tonight, I don't know, I can't pre-empt that. But that's certainly the logic we've been following so far."

NOT UNTIL APRIL

One major problem with splitting the package is whether private holders of Greek bonds would be willing to sign up to a swap if Greece's financing, which makes up the bulk of the second package, is not in place, since that would mean the state might not be able to meet future bond payments.

As a result, one euro zone source said it was possible that the entire second package - the private sector portion and the remainder - could be delayed until after Greek elections, when everyone hopes for greater clarity and commitment.

"This would mean we have to pay the 14.5 billion euros on March 20, which would be a total waste," said the euro zone source, who took part in discussions among deputy heads of euro zone finance ministries on Tuesday.

"But there is still money left from the first program so we could do it," the source said, referring to Greece's first, 110 billion euro bailout program, agreed in May 2010. "This would mean that the talks on the second program, including PSI (private sector involvement), which is part of the package, would be moved until there is a new Greek government in place."

The frustration expressed by Germany, the Netherlands and others, reflected in the proposal to delay the rescue package, is in part designed to put political pressure on Athens. But officials say it is also genuine and a sign that patience is wearing thin after two years of trying to sort out Greece.

Data from Athens on Tuesday showed the economy shrank 7.0 percent in the fourth quarter of 2011 on an annualized basis, making it all the harder for Greece to meet its debt targets. One official estimated that Greece's debt-to-GDP ratio may only fall to 140 percent by 2020 given the latest figures, way above the targeted 120 percent.

For now, the central aim of euro zone finance ministers remains to push ahead with the second package as agreed last October, which would mean signing off on PSI in the coming week, possibly at a Eurogroup meeting set for Monday.

(Additional reporting by John O'Donnell in Brussels and Martin Santa in Bratislava, writing by Luke Baker, editing by Mike Peacock)

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Greece seeks Monday bailout deal, EU questions remain

ATHENS (Reuters) - Greece expressed hope it can secure its second EU/IMF bailout in as many years and a deal on easing its debt burden next week, but its euro zone peers made clear the months of increasingly ill-tempered argument are not quite over yet.

Finance Minister Evangelos Venizelos said the Greek side had met the final two demands set by the European Union and IMF to seal the 130 billion-euro rescue, which Athens needs to avoid a chaotic default when big debt repayments fall due in March.

But a government official in Germany, which has got involved in testy exchanges with Athens over its will to tackle its problems, said the Greek side still had questions to answer.

Greece pinned its hopes on a meeting of euro zone finance ministers on Monday, after talks in Athens and at the euro zone level failed to produce a deal to avert a Greek bankruptcy which could shake financial markets around the globe.

Venizelos told reporters late on Wednesday the cabinet had decided how to plug a 325 million-euro gap in the 3.3 billion euros of extra budget savings this year which the EU and IMF are demanding.

And he noted that the leaders of both parties in the government of Prime Minister Lucas Papademos had given written undertakings to implement the austerity measures, which provoked a night of fighting, arson and looting in Athens on Sunday.

Exasperated euro zone finance ministers in the Eurogroup had demanded both steps be taken before making a final decision on the bailout.

MISTRUST OF ATHENS

With mistrust of Athens running high, EU sources told Reuters that euro zone officials had considered whether it was possible to delay part or all of the rescue deal while still avoiding a disorderly default.

Greece needs the funds to avoid bankruptcy when 14.5 billion euros of debt repayments fall due on March 20.

"The big issue of the 325 million euros has been finalised and this helped the discussion," Venizelos said following a lengthy telephone conference call with his euro zone peers.

The Eurogroup had been due to meet in Brussels on Wednesday but its Chairman Jean-Claude Juncker scaled this down to a teleconference, complaining that Greek political leaders had failed to provide written commitments or plug the savings gap.

Greek party leaders have a reputation for working right up to deadlines, or beyond them, raising tensions with the Eurogroup which fears that they will avoid implementing the austerity package in full after elections expected in April.

However, conservative leader Antonis Samaras, the front runner to become the next prime minister, provided his written undertaking to the EU and IMF on Wednesday shortly before the Eurogroup conference call. Socialist leader George Papandreou wrote a similar letter.

Venizelos said he hoped euro zone officials could tie up all the issues before the ministerial Eurogroup meets on Monday, opening the way for a bond swap deal with Greece's private creditors, known as PSI, which will reduce its debt mountain.

"These issues will be prepared at a Euro Working Group meeting on Sunday in Brussels so that, with good faith, the final decision for the approval of the (bailout) programme is taken and the public announcement of the PSI is made on Monday," he told reporters.

Greece had said it must initiate a debt swap deal with private sector bondholders by Friday to meet the March 20 debt deadline. It was hoping to win the euro zone's backing for its second bailout this week. If that backing now comes on Monday, it is possible the debt swap could start mid-next week.

OPEN MATTERS

After the three-hour conference call among the 17 euro zone ministers, Juncker issued a statement saying progress had been made, but provided few details. However, he made clear some matters remained open on making sure the bailout plan is carried out in full.

"Further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of programme implementation and to ensure that priority is given to debt servicing," he said.

One government official in Germany, where public opinion is hostile to bailing out Greece, was cautious.

"Questions remain that are very important to Germany and other member states about the sustainability of the programme," said the official, who declined to be named.

German Finance Minister Wolfgang Schaeuble appeared to question whether Greece would stand by the austerity package after the elections.

"When you look at the internal political discussions in Greece and the opinion polls, then you have to ask who will really guarantee after the elections ... that Greece will stand by what we are now agreeing with Greece," he told SWR2 radio.

Greek President Karolos Papoulias, who holds a largely ceremonial role, fought back, saying: "Who is Mr Schaeuble to insult Greece?"

(Additional reporting by Dina Kyriakidou and Karolina Tagaris in Athens, Luke Baker in Brussels and Gernot Heller in Berlin; writing by David Stamp; editing by Andrew Roche)

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