Petros Giannakouris, Associated Press
Tourists walk next to the ruins of the 5th century B.C. Temple of Poseidon at Cape Sounion, south of Athens, on Wednesday, Jan. 11, 2012. Greece's development minister admitted Wednesday that the debt-crippled country's budget deficit would hit 9.6 percent of GDP in 2011, more than the 9 percent initially projected.

ATHENS, Greece — The Greek government held crucial talks with representatives of private bondholders on Thursday to hammer out a deal on a bond swap that would reduce the country's debt load and is an integral part of its second bailout package.

The meeting between Charles Dallara, the head of the Institute of International Finance which represents Greece's private bondholders, and Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos was "positive" and "constructive," a senior government official with knowledge of the talks said.

The discussions, which included senior IIF official Jean Lemierre, will resume in Athens on Friday, the official said. He asked not to be named due to the sensitivity of the talks.

Senior eurozone finance officials were also meeting Thursday in Brussels to discuss the deal. Athens was expecting progress from those talks, too, the official said.

Greece hopes to finalize the deal soon for the private creditors to take a voluntary 50 percent reduction in the value of their Greek bond holdings. It needs to clinch the deal before it can access any more rescue loans, which are essential to prevent it from defaulting on its debts when it is faced with the repayment of €14.5 billion in bonds on March 20.

Government spokesman Pantelis Kapsis said that "we estimate that we can complete this process relatively soon." Speaking on Real FM radio Thursday, Kapsis said that while he could not predict when the debt swap would be finalized, it was "an issue of the next few weeks."

The bond swap, known as the Private Sector Involvement, is a critical part of Greece's €130 billion ($165 billion) international rescue which was agreed in October but whose details remain to be worked out. The deal is essential to containing the country's massive national debt, with the aim of reducing it from more than 160 percent of gross domestic product to 120 percent by 2020.

People close to the talks said Thursday's meetings could be decisive. They spoke on condition of anonymity due to the sensitivity of the negotiations. On Wednesday, Venizelos had said the negotiations "have advanced and are now at a very good point."

Deputy Finance Minister Philipos Sachinidis told local media Thursday that if there was a lower participation rate among private creditors in the bond swap, Greece might need the difference in funds to be covered by its European partners.

"If the percentage of participation is not, for example, 100 percent, then it is possible that further support might be needed from the part of our partners, to cover the funding gap," he was quoted as telling Skai radio.

Near-bankrupt Greece has been surviving since May 2010 on rescue loans from other eurozone countries and the IMF. In return for the initial €110 billion bailout, the Socialist government at the time imposed a series of deep austerity measures, including salary and pension cuts and repeated rounds of tax hikes.

The austerity has taken a heavy toll on the economy, leaving it facing a fourth year of recession and sending unemployment spiraling. The jobless rate in October shot up to 18.2 percent, compared with 13.5 percent for the same month in 2010, the statistics agency said Thursday.

Athens has consistently slipped on several reform targets laid out in the bailout agreement, and it became clear last year that a second rescue was needed to prevent the country from a messy default that could drag down other eurozone countries and threaten the single currency itself.

The country's interim coalition government, appointed in November to handle the new bailout negotiations following a political crisis, is now rushing to pass a new batch of reforms and cuts to secure the second rescue package.

Greece is calling on unions and employers to hammer out a voluntary wage-reduction deal for the private sector to try and make its battered economy more competitive.

The budget deficit is expected to hit 9.6 percent of economic output in 2011, about half a percentage point above target, the government has estimated.

Figures released Thursday showed that in absolute terms the 2011 deficit was €21.64 billion ($27.52 billion), just within the target of €21.7 billion ($27.6 billion). In 2010, it was €21.46 billion ($27.29 billion). These figures are distinct from the general government deficit, on which Greece's progress in implementing its austerity program is measured.

A ministry statement said state revenues continued to undershoot targets in 2011, which it attributed to a two-day tax collectors' strike last month and a three-week extension for the settlement of tax obligations.

But that was offset by higher-than-anticipated spending cuts. Even then, state expenditure was €1.89 billion ($2.4 billion) higher than in 2010, which the ministry attributed to a spike in the cost of servicing the country's suffocating debt load.


Nicholas Paphitis in Athens contributed.