Hopes of Greek deal remain despite snag in talks

BRUSSELS (AP) - Despite all the tough talk of ultimatums and games of poker, Greece and its creditors in the 19-country eurozone are still expected to cobble together some sort of deal that will allow the country to remain a member of the euro currency.

Investors and European policymakers are not panicking despite a breakdown in talks between the two sides over the new Greek government's attempt to renegotiate its financial bailout.

That's likely because they've been here before - the eurozone has in recent years often run into moments of brinkmanship, many times with Greece. Each time, a deal was clinched in time.

Both sides want to avoid the worst-case scenario in which Greece is cut off from aid and has to leave the euro. That would devastate Greece's economy and rock global financial markets.

"If Greece were to leave the euro, the financial chaos that would follow could also spell the end of the Syriza-led government," said Jane Foley, analyst at Rabobank International, referring to the radical party that won elections last month.

"For this reason it remains our central view that an eleventh hour compromise between Greece and its creditors is still likely."

They're on borrowed time, though. Greece bailout ends after Feb. 28 and the longer a deal is not found, the more jittery markets are likely to get.

While the volatile stock index in Athens actually rose temporarily Tuesday before trading flat, Greece's government borrowing rates are rising steadily - a sign investors are more wary of a potential bankruptcy.

NOTHING'S FOR CERTAIN

No one is discounting the possibility that Greece might fail to agree on a deal with its creditors, a development that could have big and unforeseen consequences both for Europe and the global economy.

The latest tension centers on the eurozone's ultimatum to Greece to ask for an extension to its bailout program by Friday before further negotiations on the country's future financing can take place.

Greece's left-wing Syriza government made scrapping the bailout program a cornerstone of its recent triumphant election campaign. In return for 240 billion euros ($275 billion) of rescue money Greece has been getting since 2010, successive governments have had to implement budget austerity measures such as deep cuts to spending and pensions.

Syriza, in power for barely three weeks, blames those measures for the country's economic ills. The Greek economy has suffered through a depression and is now around a quarter smaller than in 2008, while unemployment and poverty have swelled.

"It would be an act of subterfuge to promise to our partners to complete successfully a program we challenged the logic of," Varoufakis, said.

WHERE'S THE COMPROMISE?

Jeroen Dijsselbloem, the top official in the eurozone who issued the ultimatum, is hopeful that Athens will agree to extend its current program, and as an encouragement he laid out the prospect of an immediate renegotiation of some of its terms.

"We want to formally extend the program and then talk what changes are possible within that," he said.

A deal could depend on something as simple as what the two sides agree to call the extension.

The Greeks do not want an extension of the current program, but a bridging loan. Whatever it's named, both sides want the country to get a few months' worth of loans to buy time for more thorough talks.

If they can agree on a word that saves face for both sides, a deal would be a lot closer, analysts say.

Greek Finance Minister Yanis Varoufakis laid out his hope that an agreement will be concluded in time and that progress could be made within the next 48 hours.

He said he was willing to a compromise that would see Athens delay its budget plans in return for loans. That would start a six-month negotiation on a new financial aid plan.

"We are ready and willing to do whatever it takes to reach an agreement over the next two days," he said.

BUILDING TRUST

Varoufakis' comments appear to have assuaged some of his peers in the eurozone as well as financial markets, though more talks are likely needed to clarify each side's position.

"What the Greek finance minister has said gives us a positive feeling, though I must say that (their) opinions are changing pretty much every day and that actually is our problem," Austrian Finance Minister Hans Joerg Schelling told Germany's Deutschlandfunk radio.

After this week's sudden breakdown in talks, Dijsselbloem has said trust needs to be rebuilt.

"At the moment, the two sides are running down their reserves of trust more quickly than they are narrowing the gulf that separates them," said Aengus Collins, The Economist Intelligence Unit's lead eurozone analyst. He added that the EIU "remains of the view that a last-minute deal will be agreed, but the risk of Grexit remains high at 40 percent."

----

Geir Moulson in Berlin and Elena Becatoros in Athens contributed to this report.