BRUSSELS ? Investors participating in a deal to slash Greece's massive debt would face an overall loss on their bond holdings of around 70 percent, a person familiar with the negotiations said Monday.
Athens and representatives of investors holding Greek government bonds over the weekend came close to a final deal designed to make Greece's debt sustainable. The country has to secure an agreement with its creditors to get any further international rescue funds.
If the agreement works as planned, it will help Greece remain solvent and help Europe avoid a blow to its already weak financial system, even though banks and other bond investors will have to accept multibillion-dollar losses.
The person briefed on the talks said Monday that the 70 percent loss was the result of cutting the bonds' face value in half, reducing the average interest rate to between 3.5 per cent and 4 percent and pushing repayment of the bonds decades into the future.
The person spoke on condition of anonymity because the talks are confidential.
The deal, which aims to reduce the country's debt by about euro100 billion, needs to be finalized quickly. Greece runs the risk of a disorderly default on March 20, when it faces a euro14.5 billion bond repayment it cannot afford without additional help.
Many investors ? banks, insurance companies and hedge funds ? who hold Greek bonds also hold debt from other countries that use the euro, which could lose value if there is a full-fledged Greek default. This is the scenario analysts fear most and why they hope investors will voluntarily accept a partial loss on their Greek bonds.
The agreement taking shape is a key step before Greece can get a second, euro130 billion bailout. The country has been surviving since May 2010 on an initial euro110 billion package of rescue loans from other countries using the euro and the International Monetary Fund.
Besides restructuring its debt with private investors, Greece must also take other steps to secure further aid. It must cut its deficit and boost the competitiveness of its economy through layoffs of public sector workers and the sale of several state companies, among other moves.
Earlier Monday, Greek lenders Eurobank and Alpha Bank said a planned merger to create the country's largest bank by assets could be put on hold because of the negotiations over the bond swap.
The banks said that "an accurate timeline cannot be given" to complete the deal announced last August because of the negotiations.
Greece's finance ministry expressed surprise at the announcement, arguing that the negotiations had produced "nothing new or different" to factors already taken into account by both banks.
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