Greek default looms

Greeces talks with private bank creditors on a critical debt writedown stalled on Friday, raising the risk of a messy default that would plunge the eurozone into an even deeper crisis.Prime Minister Lucas Papademos said his country faced acute economic dangers without the writedown deal, which would wipe off 100 billion euros ($127 billion) from Greeces massive debt burden and help unlock further international bailout aid.We are fully aware of how critical the situation is, Papademos told a dinner hosted by the Greek-German chamber of commerce, with Greece in acute need of a deal and fresh funds as its next big debt repayment looms in March.Until the (debt write-down talks) are complete and the new loan agreement is voted, the country continues to face acute economic dangers, he said.Papademos was speaking shortly after the private bank creditors group said it had paused the talks with Greece after failing to agree with the government on the terms of the deal.Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach, the Institute of International Finance (IIF) said.It added that the talks had failed to produce a constructive consolidated response by all parties.The proposed deal would have seen banks taking a voluntary 50-percent haircut on their Greek debt, which would remove about 100 billion euros from Athens massive debt burden that currently exceeds 350 billion.The writedown is needed to unlock a eurozone bailout offering another 130 billion in loans to Greece, which has already used up two-thirds of the 110-billion-euro rescue package it received from the European Union and International Monetary Fund in May 2010.The writedown and fresh bailout funds would be a major step toward avoiding a full blown default when Greece next has major bond repayments due in March.A source close to the negotiations said Friday there was a risk the talks could break down.The IIF statement was sharply more negative than earlier comments from the Greek government, which said that talks would resume next week, probably on Wednesday.Greek officials later said a deal was still possible.I am certain we can bridge the differences, Finance Minister Evangelos Venizelos said in an interview with the Financial Times.I remain strongly committed and confident. Rationality will prevail because this initiative is of common interest to Greece, its private creditors and for all its institutional partners, he said.Papademos and Venizelos met Friday with Charles Dallara, IIF managing director and Jean Lemierre, a senior advisor to Frances BNP Paribas bank.Greek media reported Friday that a disagreement had surfaced on the interest rate of new government bonds that would be issued in return for the maturing debt being phased out under the planned deal.The Kathimerini newspaper said private sector negotiators want the new bonds to pay interest of around five percent, whereas Greek officials are only willing to agree to a level of around four percent.There are also concerns that not enough private bondholders will sign up to the deal, with a source close to the negotiations saying Greece has secured less than 70 percent support.