Athens: Greece's talks with private bank creditors on a critical debt write-down 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 write-down deal, which would wipe off ¤100 billion (Dh474 billion) from Greece's 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.

Major step

"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 write-down 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 on 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 this 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 on Friday with Charles Dallara, IIF managing director and Jean Lemierre, a senior adviser to France's BNP Paribas bank. Greek media reported on 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 per cent, whereas Greek officials are only willing to agree to a level of around four per cent.

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 per cent support.

More Greek aid

That would be insufficient to meet the targeted ¤100 billion in write-offs required to bring the country's debt levels down to 120 per cent of GDP by 2020 from over 160 per cent at the moment.

As a result, media and experts have speculated that the Eurozone may need to extend even more financial aid to Greece than already envisaged.

The European Central Bank has excluded the possibility that the ¤50 billion worth of Greek debt it reportedly holds might be included in the write-down.

The International Monetary Fund, which funded part of the first rescue of Greece, has warned that Athens may need more help.

IMF chief Christine Lagarde was quoted by German daily Handelsblatt last week as saying that aid to Greece would have to be raised by a "significant amount of tens of billions" of euros.

Voluntary haircut

The proposed deal would have seen banks taking a voluntary 50 per cent ‘haircut' on their Greek debt, which would remove about ¤100 billion from Athens' massive debt burden that currently exceeds ¤350 billion.

The write-down 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 rescue package it received from the European Union and International Monetary Fund in May 2010.

—