Greek Prime Minister Lucas Papademos is set to negotiate withleaders of the political parties supporting his caretakergovernment after he missed another deadline to secure a second aidpackage.

Papademos will meet with the chiefs in Athens today afterdelaying the meeting for a second time in as many days while Greekofficials and international creditors haggle over the terms. Thetalks are scheduled for 3 p.m. local time, his office said. He heldan unscheduled meeting late last night with the so-called troika,comprising the European Commission, the European Central Bank andthe International Monetary Fund, to put the final touches on termsrequired for a 130 billion-euro ($172 billion) rescue package.

Yesterday's delay was yet another hitch in completing a packagethat's been on the table since July. The Greek government, facing a14.5 billion-euro bond payment on March 20, is struggling toarrange financing to avert a collapse of the economy, risking a newround of contagion in the euro area.

“The situation is getting more problematic for Greece day byday,” Michael Meister, the deputy floor leader and financespokesman in parliament for Chancellor Angela Merkel's party, saidtoday in a telephone interview. “A day wasted in failing to tackleGreece's administrative, budget and competitive problems is a badday.” Greeks need to reform “not for Brussels, Berlin or the IMF,but for their own sake.”

The tussling in Athens threatens to hold up a critical elementof the second financing package: a debt swap that will slice 100billion euros off more than 200 billion euros of privately-helddebt. The rescue blueprint includes a loss of more than 70 percentfor bondholders in the voluntary debt exchange as well as loansthat will probably exceed the 130 billion euros now on thetable.

The ECB is prepared to swap its holdings of Greek governmentbonds to contribute to a reduction of the country's debt burden,Dow Jones reported yesterday, citing unidentified people briefed onthe talks. The agreement could reduce Greece's debt by as much as11 billion euros, Dow Jones said.

A formal offer for the debt swap must be made by Feb. 13 toallow all procedures to be completed before the March 20 bond comesdue. Parliament may be called to vote on the terms of the writedownon Feb. 12, state-runs Athens News Agency reported yesterday,without saying how it got the information.

Euro High

The euro touched an eight-week high against the dollar today,reaching $1.3289, the most since Dec. 12. European stocks advanced,with the Stoxx Europe 600 Index up 0.3 percent after two days oflosses. U.S. index futures and Asian shares also rose.

Papademos met last night for “constructive” talks with CharlesDallara, managing director of the International Institute ofFinance, which has negotiated the terms of the swap, and DeutscheBank AG Chairman Josef Ackermann, according to an IIFstatement.

Creditors are prepared to accept an average coupon of as low as3.6 percent on new 30-year bonds in the exchange, said a personfamiliar with the talks, who declined to be identified because afinal deal hasn't been struck yet.

While the prime minister and party chiefs haveagreed to make further cuts this year equal to 1.5 percent of grossdomestic product, they have yet to close gaps over measuresdemanded by creditors for the rescue. Unions, which struckyesterday, have derided the conditions as “blackmail.”

“There is a path here for Greece, there is a way out for Greece,if it wants to take it, but there's no denying this will be tough,”Grant Lewis, an economist at Daiwa Capital Europe Ltd. in London,said in a radio interview with Bloomberg's Ken Prewitt yesterday.“You are talking about multi-year austerity packages against abackdrop of an economy that's shrinking very rapidly.”

A Greek official said yesterday the government and internationalcreditors were close to a final draft of an agreement on budget andstructural measures needed to extend the financial lifeline.Another official said earlier yesterday talks were focused on howto make up for a 550 million-euro shortfall in new austeritymeasures for this year.

At stake is whether Greece wins the bailout, secures a debtwrite-off with private creditors and remains in the euro region.Failure and the country's bankruptcy means even greater sacrifice,Finance Minister Evangelos Venizelos has warned.

With elections due as early as April, Greek political leadersare arguing over demands such as ensuring the viability of pensionfunds and reducing wage- and non-wage costs to boostcompetitiveness.

Efforts to win a second bailout from the troika have hung in thebalance over the past five days as lenders demand officials sign upto measures ranging from a cut in the minimum wage, lower pensionsand immediate layoffs for as many as 15,000 state employees.

Merkel, speaking in Berlin late yesterday at an event onEurope's future, said the impact of a Greek exit from the eurowould be “incalculable,” and restated her determination to keepGreece in the single currency region.

“I don't want Greece to leave the euro and therefore thequestion doesn't arise,” Merkel said. “I won't take part in anyeffort to push Greece out of the euro. It would have incalculableconsequences.”

Even so, the chancellor, who heads Europe's biggest economy andthe biggest contributor to euro-area bailouts, said there is “noway around” Greece carrying out reforms. Greece is in a “verycomplicated situation,” she said.

Greek Recession

The troika argues that lower wage costs and pension cuts areamong reforms necessary to boost competitiveness in the country.Those opposed say the cuts would deepen the country's recession,now in its fifth year.

Antonis Samaras, the head of the second-biggest party, NewDemocracy, has indicated he will oppose measures that will deepenthe country's downturn. George Karatzaferis, the head of Laos, oneof the three supporting Papademos, said he would seek assurancesthat the measures would lead the country out of the crisis.

Guarantees from Greek leaders such as Samaras, who is ahead inopinion polls, are key to securing the funds. International lenderswant assurances that whoever wins the next election will stick topledges made now to receive financing.

Samaras's party has 31 percent support from voters, according toa Public Issue poll, compared with 8 percent for the socialistPasok party, which is the biggest party in the current parliament.The survey of 1,002 Greeks showed a growing number of Greekswanting elections immediately and waning support both for Papademosand the parties that back him.

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.