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Thanassis Stavrakis, Associated Press
Greek Prime Minister Lucas Papademos, first left, and Finance Minister Evangelos Venizelos, second left, talk with Charles Dallara, first right, and and Jean Lemiere from the Institute of International Finance, which represents Greece's private bondholders after their meeting at Maximou mansion in Athens, late Thursday, Jan. 19, 2012. The Greek government resumed talks with its private creditors for second day in the hope of sealing a debt relief deal needed to avoid a disastrous default this spring.

ATHENS, Greece — Greece has made progress in crucial negotiations with its private creditors on a €100 billion ($129 billion) debt writedown that is essential to maintain the country's solvency, and negotiations will stretch into a third day Friday, officials said.

The Institute of International Finance, which represents bondholders, said "productive discussions" were held late Thursday with the Greek government, represented by Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos.

"The mood is good," Venizelos told journalists after the two-hour meeting with top IIF officials Charles Dallara and Jean Lemierre. "We had a very substantive and long discussion, there was progress and we will continue tomorrow."

Earlier, Venizelos warned that eurozone countries won't increase financial support for Greece if the deal with investors, known as Private Sector Involvement, fails.

Greece is facing a renewed threat of defaulting on its debts, with a €14.5 billion ($18.7 billion) repayment looming March 20 and no funds to cover it.

"If there is a (financing) gap, this would have to be covered by a larger contribution from the official sector — that means the eurozone countries, directly or indirectly. And at this point, I do not see any willingness or readiness to increase that contribution," Venizelos told parliament. "So there must be no gap, and the Private Sector Involvement is very important."

Talks between the government and representatives of private investors broke down last Friday amid disagreements over the interest rate that Greece would have to pay for the new, lower-valued bonds. They restarted Wednesday, when the IIF sent a new proposal to Prime Minister Lucas Papademos with several new elements, including the interest rates, a European Union official said Thursday. The official spoke on condition of anonymity because the discussions are confidential.

The IIF now suggests an interest rate of below 4 percent that increases gradually until 2020, the official said. He said he didn't know how high the interest rate would go, but added he was hopeful a deal could be reached by the end of the week. That would allow eurozone finance ministers to discuss the deal at their meeting Monday in Brussels.

Venizelos and Papademos continued negotiations late Thursday with Charles Dallara, a top official at the IIF.

The bond-swap negotiations are part of a second bailout deal for Greece worth €130 billion ($168 billion) tentatively agreed upon between Greece and eurozone countries, on top of the €110 billion ($142 billion) in rescue loans Athens has been getting from the eurozone and International Monetary Fund since May 2010.

But the eurozone said Athens would only get the new financial aid if private bondholders agree to cancel 50 percent of their Greek debt in exchange for a cash payment and new bonds with longer maturities.

Venizelos warned a default would inevitably lead to Greece's exit from the 17-nation eurozone.

"Bankruptcy would of course mean our exit from the euro, because we would not be able to withstand staying in," he said Thursday.

Senior members of the EU-IMF debt inspection team known as the "troika" are due in Athens on Friday to negotiate additional terms for the second bailout and to monitor Greece's progress on slashing deficits though harsh austerity measures.

Papademos met for nearly three hours with the leaders of political parties backing his two-month-old coalition government to discuss the debt talks and the inspectors' visit.

"The discussions took place in a positive atmosphere, and the political leaders reaffirmed their for full support for the government to complete its work," Papademos said.

On Tuesday, parliament is to approve a series of new austerity measures demanded by the debt inspectors, including provisions to open up closed professions and easier payment schemes to help businesses settle mounting tax debts.


Gabriele Steinhauser in Brussels contributed to this story.