ATHENS/BRUSSELS (Reuters) - Hopes rose on Thursday that Greece has finally done enough to secure a second bailout after Athens set out extra budget savings demanded by its international lenders, but the optimism failed to ease tensions with EU paymaster Germany.
Time is running out for Greece to seal the 130 billion euro ($170 billion) rescue and avoid bankruptcy, but Greek officials hope euro zone finance ministers will sign the deal off on Monday - exactly a month before Athens needs the money to repay 14.5 billion euros of debt repayments due on March 20.
The optimism followed deepening acrimony between Athens and northern states in the 17-member currency union, led by Germany, and came only after one proposal to withhold part of the bailout until after Greek elections expected in April was dropped.
"We are almost there," one euro zone official said, expressing hope the deal can be done when the ministers of the Eurogroup meet in Brussels.
"Unless someone really comes up with an idea to undermine the whole deal, it should be approved on Monday," he said.
In a further sign of an emerging agreement, euro zone sources said national central banks in the currency bloc would exchange holdings of Greek bonds this weekend in the run-up to a private sector debt deal to avoid taking forced losses.
With a go-ahead from the Eurogroup ministers, Greece can formally launch a debt restructuring offer to its private creditors which aims to halve the face value of what Greece owes
the investors, slashing its debts by 100 billion euros.
"There is no certainty but there is cautious optimism," Antonis Samaras, leader of Greece conservative New Democracy party and the favorite to win the elections, told reporters.
"Greece has done what it had to do," said Samaras, whose party is one of the two remaining in the coalition of technocrat Prime Minister Lucas Papademos.
Argument over the bailout, the second for Greece since 2010, has badly strained relations with Germany. Berlin will fund a large part of the bailout and has delivered regular lectures to Athens on how it should tackle its crisis.
Anger has shifted in recent days from Chancellor Angela Merkel to her finance minister, Wolfgang Schaeuble, who in Greek eyes appears to have strayed from economic matters into the political, and even electoral process.
On Wednesday Schaeuble noted that Italian political parties had given technocrat Prime Minister Mario Monti a year to push through reforms.
In Athens those comments were interpreted as a suggestion to delay the Greek elections, allowing Papademos - who has been in power only since November - more time to implement the promised budget cuts and reforms.
This brought a tart response from government spokesman Pantelis Kapsis. "I have nothing to say in response to Mr. Schaeuble - it is absolutely up to Greece when to hold elections," he told reporters.
Frustration exploded on Wednesday as President Karolos Papoulias, an 82-year-old veteran of the resistance to Nazi occupation of Greece in World War Two, attacked Schaeuble.
Schaeuble, who has likened Greece to a "a bottomless pit," also expressed doubt on whether Athens would stick to its austerity promises adopted by parliament on Monday as rioters torched and looted buildings across the capital.
"I cannot accept Mr Schaeuble insulting my country," said Papoulias. "Who is Mr Schaeuble to insult Greece?"
Kapsis confirmed that Athens expected to win approval from the Eurogroup on Monday for the debt swap deal, under which the real value of bonds held by banks and insurers will fall by about 70 percent.
The euro rose, European shares recovered losses and safe haven German Bunds hit session lows in response to developments which could help allay the debt crisis.
Athens has provoked rising frustration among some euro zone members at what they see as a trend of Greek political leaders doing the minimum possible at the last moment since the crisis began in 2009. Critics say exactly the same applies to the euro zone's response over the last two years.
Greek government sources said Athens had agreed with the EU and IMF on how to fill the 325-million-euro hole in a set of 3.3 billion euros in budget cuts adopted by parliament on Monday.
Two sources said 100 million euros would come from defence cuts, about 90 million by bringing forward some public sector wage reductions and another 135 million would be taken from the health, labor and interior ministries.
Some points remain unresolved. Kapsis said the issue of an escrow account to ringfence funds for debt payments had not been agreed, while a German coalition source said more work was needed on how to monitor Greece's efforts to cut spending.
Euro zone finance ministers must also consider on Monday a report by the European Commission, the European Central Bank and the International Monetary Fund which predicts Greek debt would be around 129 percent of GDP in 2020, well above a target of 120 percent set in October.
Several officials have said a target of 125 percent would be acceptable to most euro zone members - and possibly also to the IMF - but measures will be needed to get it somewhat lower.
Ideas include the euro zone cutting the interest on its existing bilateral loans to Greece; increasing its current offer of 130 billion euros of government financing; and asking private investors to agree to bigger losses.
A further option is for the ECB to forego profits on Greek bonds it holds in its portfolio and to re-sell them to the euro zone's bailout fund, the European Financial Stability Facility (EFSF), at the same discount it bought them on the market.
Earlier, faced with calls for greater scrutiny of Greece's implementation of the deal, one Greek cabinet member lashed out at the EU for "sheer blackmail."
"Any other intervention, any new demands by our lenders, will mean they are mocking the country," Public Order Minister and former EU commissioner Christos Papoutsis said.
"Some in Europe forget that behind the numbers are people," Papoutsis said. Union leaders called for a new rally on Sunday "to answer all those who want Greece under German occupation."
Additional reporting by George Georgiopoulos and Karolina Tagaris in Athens, and by Brussels, Berlin and Amsterdam bureaus; Writing by Mark John, Matt Robinson and David Stamp; Editing by Myra MacDonald