'Little progress' in talks to slash Greek's debts

Beleaguered Greece was making little progress in crunch talks with private creditors over slashing its debts today, as the country attempts to avert a catastrophic default.

Greek prime minister Lucas Papademos is attempting to push through "voluntary" 50% losses on the banks holding its debt to cut its huge borrowing burden to 120% of GDP by 2020.

But he has yet to strike a deal with the International Institute of Finance, representing the banks, after resuming talks yesterday.

Both sides remain bogged down over the interest payment that Greece must offer on its new bonds under the deal, with the banks pushing for much higher returns than Greece wants to pay. The two sides must agree a deal within days to pave the way for Greece to receive more aid and avoid a disastrous default when 14.5 billion (£12 billion) in bond payments fall due on March 20.

Lloyds Bank Corporate Markets analyst Charles Diebel said: "The negotiations are crucial for the future of the country and the euro project as a whole. The first day of negotiations did not produce any significant news, however pressure on the IIF will peak to accept a deal."

The bond swap deal is vital for clinching Greece's second 130 billion rescue package, with EU and IMF lenders warning that Athens will not get any more funds without it.

An IMF team will fly into Athens this week after Greece formally requested a new loan programme.

The IMF is looking to more than double its war chest by raising $600 billion (£388 billion) in new resources to help countries deal with the fallout of the wider debt crisis, although it is facing resistance from several nations, including the US.

Despite Greece's woes, there was better news from the bond markets today as Spain passed its biggest test of the year, selling 3 billion in 10-year bonds at an interest rate of 5.4%.

The price paid was well down on the near-7% it paid in more turbulent market conditions in November and comes after the European Central Bank flooded banks with nearly 500 billion at in December.

France also drew strong demand at its first auction since Standard and Poor's stripped the country of its AAA credit rating last week, selling 8 billion in debt.