Euro ministers upbeat on Greece, crisis solution

Fri Jan 27, 2012 10:01am EST
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By Paul Taylor and Paul Carrel

DAVOS, Switzerland (Reuters) - Euro zone finance officials voiced optimism on Friday that a deal to avert a disorderly Greek default was imminent and that key building blocks to resolve Europe's sovereign debt crisis are gradually fitting into place.

Europe's top economic official said an agreement between the Greek government and its private creditors on voluntary losses for bondholders would be complete within days and the euro zone was making progress on strengthening its financial firewalls.

"We are very close to a deal, if not today then over the weekend and preferably in January, not February. We are very close," European Economic and Monetary Affairs Commissioner Olli Rehn told the World Economic Forum in Davos.

The euro strengthened against the dollar and safe haven German bond futures fell back after Rehn's comments. Italy's six-month borrowing costs fell below 2 percent at an auction, their lowest since May, in another sign of easing bond market tensions.

German Finance Minister Wolfgang Schaeuble, speaking on the same panel as Rehn, said crafting a new rescue package for Greece was not easy because of past slippage in its performance, but it would be done in the coming days.

"We don't expect a default in Greece," he said. However, he cautioned that Athens would have to meet commitments to economic and fiscal reform that it had not delivered over the past two years and warned against giving Greece the wrong incentives.

The emerging private sector bond swap deal seems set to leave a funding gap of 12-15 billion euros to bring Greece's debt down to a level of 120 percent of annual output regarded by the IMF as sustainable, EU officials say.

Rehn and Jean-Claude Juncker, chairman of the 17 euro area finance ministers, have both said European governments and institutions may have to increase their support for Greece to make up the difference.   Continued...