ATHENS, Greece - Greece has all but concluded a crucial deal to write off half its privately-held debt and is now working on new austerity measures needed to secure continued bailout loans, Finance Minister Evangelos Venizelos said Tuesday.
"We are one step — I would say it is a formality— away from finalizing" the debt relief agreement, Venizelos told a news conference. "The next few days will determine what happens over the coming decade."
Under the deal, private creditors would swap their Greek bonds for new ones worth half as much, with a longer repayment period and lower interest rate as well as €30 billion ($39.53 billion) cash upfront.
Greece needs the deal to lower its debt — which is simply too big for it to tackle alone — by some €100 billion and therefore avoid a default that would spell disaster for the country and destabilize European and global markets.
Venizelos said that one of the conditions for this bond swap deal to go ahead is a commitment by Greece's bailout partners to keep giving it rescue loans.
To do that, Greece is now focusing on completing negotiations by the end of the week with its European partners and the International Monetary Fund on a new program of cutbacks — without which Greece's bailout lifeline will be cut.
He said he hoped finance ministers from countries using the euro can sign off on the cuts — and a new bailout worth €130 billion ($170 billion) — during their meeting next Monday in Brussels.
"Without a program there can be no funding," Venizelos said.
After a European Union summit on Tuesday, Greek Prime Minister Lucas Papademos told reporters in Brussels that he hoped both sets of negotiations would be finished this week.
Greece has been in deep recession for the past three years, and gross domestic product is set to slow further in 2012, hindering the country's debt-reduction efforts.
The bond swap is intended to make the country's debt sustainable in the medium term, by bringing the debt-to-GDP ration down from 160 per cent last year to 120 per cent in 2020.
The country has been surviving since May 2010 on a first bailout worth €110 billion, but it eventually became clear that more cash would be needed.
A team of international debt inspectors from the European Commission, the European Central Bank and the IMF — known as the troika — has been pressing for more spending cuts to address budget shortfalls last year and to accelerate deficit-cutting efforts through 2015.
"Spending on health, medicine and defence, are the main areas in our fiscal effort," said Health Minister Andreas Loverdos. He added the government will cap spending on medicine at €2.88 billion this year, down from an earlier estimate of €3.2 billion.
Meanwhile, troika officials in Athens on Tuesday delayed to later in the week a meeting with the Labor Minister to discuss ways of reducing employment costs — a key sticking point in negotiations between the struggling eurozone country and its rescue creditors.
Greece's unions, employers and political parties have all opposed suggestions that employment costs could be cut by slashing the minimum wage and private sector pay.
Jean-Claude Juncker, the Luxembourg prime minister who chairs the group of eurozone finance officials, said Greece would be facing more pressure from other eurozone members to meet budget-cutting targets but, rejected German suggestions to appoint a budget commissioner with veto powers over Greek decisions.
"I do not see the need to appoint a budget commissioner only and specifically for Greece. But our Greek friends also must know that they are under increased surveillance," Juncker told German's public Deutschlandfunk radio.
"Everyone knows that Greece's consolidation program is off track," he said. "Greece must live up to its commitments."
Nicholas Paphitis in Athens and Juergen Baetz in Berlin contributed.