By Neil Unmack The author is a Reuters Breakingviews columnist. The opinions expressed are his own. Euro zone leaders may be trying to tweak the Greek debt swap to impose marginally deeper losses on private creditors than agreed in July. That wouldn’t help Greece much, but it would stagger the pain for banks, and Greece’s public creditors. Greece’s creditors originally agreed to a 21 percent haircut on their bonds, in the 135 billion euro swap agreed as part of the country’s second bailout. Euro zone officials are now contemplating a 30-to-50 percent haircut, officials told Reuters. But part of that would simply come from changing market conditions, suggesting banks may simply use a higher discount rate to value the new securities they would get in exchange for their bonds. In other words, the larger apparent haircut could be more of an accounting trick than a way to lighten Greece’s debt load. The swap agreed in July used a below-market discount rate of 9 percent to value coupons on the new 30-year bonds. But yields for 30-year Greek debt have risen since July to 17 percent. Twiddle the discount rate to 15 percent, and banks losses jump to 39 percent, even though the terms of the deal haven’t changed. Greece’s budget deficit this year will be larger than forecast in July, largely because austerity is biting hard. The swap may also need tweaking to lighten Greece’s interest costs and cut the deficit. Cutting the interest rate offered to creditors by a full two percentage points — to 2 percent — would be a step in the right direction, increasing the haircut to some 52 percent. But Europe seems to be hesitating to go that far. There may be advantages to a more gentle approach for both banks and politicians. Banks would stagger losses over time, taking some pain now and some later. And they would preserve the benefits of the July swap, which protects their principal by getting Greece to collateralise the new bonds with risk-free securities; this means lower losses in the future restructuring. Euro zone governments can argue they have extracted more from bondholders, and delay the day when they have to take losses on their own loans to Greece. Moreover, Athens would still be slaving under a heavy debt load, keeping it under pressure to reform. But Europe’s leaders should understand that the risk of the crisis dragging on, or even getting worse increases if the debt problem isn’t tackled for good now.

In an interview with the weekly Proto Thema newspaper, Papandreou said the government was fighting to stop Greece defaulting on its debts but the road ahead was hard.”I would very much like to guarantee everyone an immediate solution, a better life today,” he told the newspaper in an interview which hit newsstands on Saturday.”I would be the happiest man in the world if I could do that but I can’t and I have a duty to be honest and tell this truth to every Greek citizen,” he said.Next week parliament is due to pass measures including pay and pension cuts and thousands of layoffs in the public service.Greece’s two main union federations have called a 48-hour general strike which is expected to shut down much of the country to coincide with the vote on Wednesday and Thursday.Separate strikes by customs officials and municipal workers are expected to deepen the misery of ordinary Greeks by creating fuel shortages and leaving garbage to pile up in the streets.On Saturday, thousands of demonstrators filled Syntagma Square outside parliament as part of worldwide demonstrations attacking the financial system.However, Papandreou dismissed any suggestion that Greece could afford to walk away from a debt burden estimated to reach 162 percent of gross domestic product this year.He said he would be seeking the support of European partners at a summit in Brussels next week — the latest in a long line of emergency efforts to contain the crisis, which has spread from Greece to engulf Ireland and Portugal and to threaten the much bigger Spanish and Italian economies.”All our efforts aim at safeguarding our country’s interests, the interest of the vast majority of citizens who would experience a real catastrophe if Greece defaulted,” Papandreou said.NOT ATLASHe said that Europe had to help Greece tackle a crisis that now threatens the whole euro zone.”We are not Atlas which can take all Europe’s problems on his shoulders,” he said, referring to a Greek mythological figure who supported the heavens on his shoulders. “If Europe cannot solve its problems, the consequences will be unpredictable for all of us in Europe.”Papandreou’s ruling PASOK party has seen its ratings drop sharply in recent months as it meets the tough terms of European Union and International Monetary Fund aid, and has faced daily protests by groups ranging from taxi drivers to lawyers and municipal workers.At least two of Papandreou’s deputies have threatened to vote against part of a new package. The government’s slender majority is expected to hold up, with support from smaller opposition parties, for the new austerity bill, however.Papandreou said the ruling party would have no reason to exist if it did not “live up to the historical challenges of its era,” and ruled out quitting his post.”All these months, I had to deal with challenges none of my predecessors have ever experienced,” he said. “But I have never thought of quitting, giving up the battle.”The government’s term ends in 2013 but many analysts see snap elections on the horizon.