Athens: Greece's talks with bank creditors on a debt writedown vital to its economic survival are in "grave condition" and could break down altogether, a source close to the negotiation said on Saturday.
"There is extreme tension," the source told AFP. "All parties involved in this crucial negotiation ought to be aware of this very grave condition and assume their responsibilities to avoid the worst," the official added.
A group representing the financiers said the talks had stalled after failing to produce a "constructive consolidated response by all parties".
"Under the circumstances, discussions with Greece and the official sector are paused for reflection on the benefits of a voluntary approach," the Institute of International Finance
(IIF) said.
The proposed deal would have seen banks taking a voluntary 50-percent "haircut" on their Greek debt, which would remove about 100 billion euros from Athens' massive debt burden that currently exceeds 350 billion.
The voluntary writedown would be a major step toward avoiding a fully blown default in March.
The IIF statement was sharply more negative than earlier comments from the Greek government, which said that talks would continue next week.
A government official had earlier told reporters that the talks "will probably continue on Wednesday" following a meeting between the Greek government and senior bank negotiators.
"There are some details to be worked out," the official had added.
Greek Prime Minister Lucas Papademos and Finance Minister Evangelos Venizelos had previously met with Charles Dallara, IIF managing director and Jean Lemierre, a senior advisor to France's BNP Paribas bank.
Greek media on Saturday reported that a disagreement has surfaced on the interest rate of new government bonds that would be issued to credit holders in return for the maturing debt being phased out under the planned deal.
The Kathimerini newspaper said private sector negotiators want new debt obligations to be repaid at about a five percent interest rate, whereas Greek officials are only willing to agree to a level of around four percent.
The partial writedown is a precondition for unlocking a second rescue package worth some 130 billion euros agreed in principle at an EU summit last October.
According to a source close to the negotiations, Greece has secured less than 70 percent of support from private creditors on the debt writedown.