Anatomy of the Greek debt negotiations

(ATHENS) - Agreement among Greek political parties on meeting the latest targets set by the European Union and International Monetary Fund enables the eurozone to decide on an overall second bailout.

The overall rescue framework involves a big and unprecedented write-down of debt held by private banks and creditors.

Here are the main issues at stake:

- WHAT THE TALKS COVER

The unprecedented PSI (Private Sector Involvement) talks boil down to classic debt restructuring negotiations, under which private creditors should accept a cut of at least 50 percent on the 200 billion euros in Greek debt they hold and considerably longer repayment schedules. Greece's debt totals some 350 billion euros.

For the first time however, a eurozone member is concerned and the talks are taking place to prevent Greece, which is teetering on the brink of bankruptcy, from having to declare a debt default.

A sovereign default in Greece would increase the chances of a prolonged recession in the 17-nation eurozone which in turn could well undercut the global economy.

As a result, many countries around the world and the International Monetary Fund have a keen interest in the crisis being resolved.

- WHY HAVE THE TALKS DRAGGED ON ?

Banks, insurers and private investors wanted to stick to an EU October summit deal that calls for a 50-percent debt writedown (a 100-euro bond to be replaced by a 50-euro bond), with additional debt relief coming via the interest rate to be paid on the replacement bonds that are to be repaid at considerably later dates.

Germany and the IMF insisted meanwhile that Greece's overall debt burden must be brought down to 120 percent of gross domestic product in 2020 from the current 160 percent to ensure that it is sustainable over the longer term.

The success of an accord with private creditors is tied to the wider talks on the conditions of a second bailout of 130 billion euros that the eurozone pledged in October. Greece received a 110-billion-euro rescue in May 2010 by the EU and the IMF.

Greece has had to accept the latest stringent austerity measures and reforms so that its recession stuck economy has a chance of growing again. Greek political parties argued among themselves until the last minute over replacing extra pension cuts with cuts elsewhere in the budget but finally made the sums add up.

- THE INTERNATIONAL STAKES IN THE NEGOTIATIONS

In the short term, the aim is to avoid bankruptcy by a eurozone member which could set off an unpredictable chain of events across the bloc.

In the absence of an accord, Greece could default from March 20, when it has to repay 14.5 billion euros to creditors.

If the talks were yet to fail at eurozone level, Athens would risk having to leave the eurozone to be able to devalue its currency and loosen the debt stranglehold.

- WHAT ARE THE RISKS FOR GREECE ?

If the deal is now approved at EU and IMF level, Greece will suffer further in social terms given the efforts required, including cuts in salaries and pensions. Unions have called a 48-hour general strike in protest.

If Greece defaults or has to leave the eurozone, analysts warn that its borrowing costs would climb even higher, making it more difficult to straighten out its finances.

Most economists calculate the cost of such a scenario as considerably higher than that of debt rescheduling agreement.

- WHERE DOES THE ECB FIT IN ?

The European Central Bank finds itself facing calls to write off some of the value of its own Greek bonds to help finalise a debt deal.

According to one eurozone central bank official, the ECB holds 45 billion euros in Greek bonds. The bank signalled on Thursday that it does not now rule out taking losses.

- WHY IS THE IMF PRESSURING THE ECB ?

The IMF has trouble getting non-European shareholders to take part in a second debt bailout for to Greece and according to its statutes it can not help a country whose debt is considered unsustainable.

If the PSI does not reduce Greece's debt enough, the Fund has threatened to cut off loans to Greece.

- AND IF ALL GOES WELL

Now that Greek political parties have agreed among themselves on how to swallow the latest radical austerity measures, a PSI accord is expected to be signed. By February 13, there should be the launch of a tender to exchange bonds now held by those creditors.

By early March, a vote is expected by the Greek parliament on the PSI and a second structural adjustment programme.

Before March 20, half of the debt held by private creditors should be erased and the first payments of some 85 billion euros in new European loans to meet the debt default deadline is expected.

Up to 2015: continued austerity in Greece.