Negotiators representing the investors who have lent money to Athens met again with Greek Prime Minister Lucas Papademos on Friday but there was no agreement and both sides said afterwards they were less optimistic. More meetings are planned, probably starting next Wednesday.
Those investors have said they will accept getting back only half of the original loans but the talks have been complicated by demands for further concessions.
The Greek government needs to slash its debt to more sustainable levels and convince the European Union and International Monetary Fund to keep lending it money.
Greece’s total debt is 340 billion euros. It is looking for another 130 billion euros on top of the 110 billion bailout it got in May 2010.
Greece needs the money to prevent it going bankrupt in March. That is when it has to repay earlier loans which are coming due.
A deal must be struck well before the 20 March when 14.5 billion euros worth of government bonds will be redeemed, because the paperwork alone will take at least six weeks to process.
EU, IMF and ECB inspectors, who arrive in Athens on Tuesday for talks on a new, 130-billion-euro rescue plan for Greece, also want to see an agreement on the debt swap before they agree on the bailout.
A Greek default would be far worse for both Greece and the banks than reaching some form of deal.
“Discussions with Greece and the official sector are paused for reflection,” said the Institute of International Finance (IIF), which leads talks for private bond holders.
“Unfortunately, despite the efforts of Greece’s leadership, the proposal put forward … has not produced a constructive consolidated response by all parties.”
Both sides appeared to be digging in their heels in what some analysts said appeared to be a high stakes poker game in the last stretch of intense negotiations.