âNow is the time for tough negotiation,â said the Greek finance minister, Evangelos Venizelos.  Talks among senior European officials in Brussels ended Tuesday without any commitment from the central bank but with hopes still alive that the bank would agree to the deal.  Because the European Central Bank bought Greek bonds, with an estimated face value of 50 billion euros, ($65 billion) at a discount to their market price, it could enter into a deal that would cause it to give up future gains without taking a loss, said a European official, requesting anonymity because of the sensitivity of the issue.  The precise financing gap needs to be filled even after private sector investors agree, as expected, to take losses in excess of 50 percent on their bonds. Their losses alone will not be enough to allow Greece to hit its target ratio of debt to gross domestic product of 120 percent by 2020.  The issue of how to fill the gap must be resolved before Greece can qualify for a second bailout, expected to total around 130 billion euros ($170 billion).  European officials, waiting for a study of Greece’s debt sustainability from the International Monetary Fund, hope to reach a deal with private investors in days.  “Now is the time for tough negotiation, not later,” the Greek finance minister, Evangelos Venizelos, said Tuesday in Athens. “We are one step — just a formality — from the completion of the procedure.” He told lawmakers that private sector investors could take a loss of more than 70 percent, according to Greek media reports.  Mr. Venizelos said the aim was to conclude talks with the so-called troika of foreign lenders — the European Union, the European Central Bank and the I.M.F. — by the end of the week so that the framework of a new economic program for Greece would be in place before a possible meeting of euro zone finance ministers next Monday.  Officials hope the agreement on the second Greek bailout will be followed in March by a decision to build a bigger firewall for the euro zone at the same time that a permanent 500 billion-euro rescue fund is established. Both steps are seen as crucial for the restoration of market confidence in the single currency.  At a meeting Monday, all European Union nations except Britain and the Czech Republic agreed to a new fiscal compact demanded by Germany, intended to tighten budget discipline. The hope is now that this agreement has been reached, Berlin may have more political ability to be flexible over the firewall.  German officials are adamant that the other euro zone governments and the I.M.F. have already done much to protect private bondholders by, for example, providing Greece with financing after it was no longer able to sell bonds on the open market. Those measures have helped Greece avoid a default and prevented more catastrophic losses for holders of Greek bonds.  As a result, officials are loath to do bond investors any more favors. And they remain fiercely opposed to any solution that involves the central bank forgoing profits on its holdings of Greek bonds, arguing that it would then become difficult for the bank to justify continued intervention in the debt market.  The central bank’s purchases of Greek, Irish, Portuguese, Spanish and Italian debt, totaling 219 billion euros so far, have helped hold down borrowing costs for those countries, at least temporarily.  If the central bank took a loss on its Greek holdings, it could also face accusations that it was violating its own charter by indirectly financing a euro zone government. At least publicly, the bank is sticking to its position that it is not a party to the talks between Greece and its bondholders and that it does not feel an obligation to participate in debt relief.  Still, there has been speculation that the central bank might agree to sell its Greek bond holdings to the European Financial Stability Facility, the euro zone bailout fund, at the same discounted price it paid for the debt on the open market. The fund would then pass on the savings to the Greek government.  That idea is seen as less likely than the central bank offering to surrender future profits on Greek bonds. Yet even that step might not be uncontroversial.  “If they are going to have some capital gain, the question is, how is that gain distributed?” said Nick Matthews, an economist at Royal Bank of Scotland.  “I’m sure you would find some people that would argue that the gain should be shared across the euro system,” he said, referring to the network of central banks. “Some others would argue that the E.C.B. should not be profiting from the conditions in Greece.”  Stephen Castle reported from Brussels and Jack Ewing from Frankfurt. Niki Kitsantonis contributed reporting from Athens.
Officials say a deal involving the European Central Bankâs holdings of Greek bonds could bridge a crucial financing gap and clear the way for the next bailout.