Investors participating in a deal to slash Greece's massive debt would face an overall loss on their bond holdings of more than 70%, it has emerged.
European leaders at a summit in Brussels said a final debt deal could be signed off in the coming days, together with a second multibillion-euro bailout package designed to save the country from a potentially disastrous bankruptcy.
Athens and representatives of investors holding Greek government bonds over the weekend came close to a final agreement designed to bring Greece's debt down to a more manageable level. Without a restructuring, those debts would swell to around double the country's economic output by the end of the year.
If the agreement works as planned, it will help Greece remain solvent and help Europe avoid a blow to its already weakened financial system, even though banks and other bond investors will have to accept big losses.
A person involved in the talks said the more-than 70% loss was the result of cutting the bonds' face value in half, reducing the average interest rate to between 3.5 and 4% and pushing repayment of the bonds 30 years into the future.
A second person briefed on the talks confirmed that the loss on the so-called net present value of the bonds would be around 70%.
The deal, which would reduce the country's debt by about 100 billion euro (£83.7 billion) and save it billions in interest payments, needs to be completed quickly. Greece runs the risk of a disorderly default on March 20, when it faces a 14.5 billion euro (£12.1 billion) bond repayment it cannot afford without additional help.
Many investors - banks, insurance companies and hedge funds - who hold Greek bonds also hold debt from other countries that use the euro, which could lose value if there is a fully fledged Greek default. This is the scenario the eurozone fears most and why the currency union hopes investors will voluntarily accept a partial loss on their Greek bonds.
The agreement taking shape is a key step before Greece can get a second, 130 billion euro (£109 billion) bailout. The country has been surviving since May 2010 on an initial 110 billion (£91 billion) euro package of rescue loans from other countries using the euro and the International Monetary Fund.
Even a deal is inked, there is no guarantee that Greece will not need more help. "It's too early now to say whether we will need some extra public funding," Greek prime minister Lucas Papademos said after a meeting with other top European officials in Brussels. "Our goal is to avert such an alternative."