(Bloomberg News) Greece is insolvent and probably won't be able to honor a bond payment in March as the country negotiates with creditors to cut its debt burden, Fitch Ratings Managing Director Edward Parker said.

The euro area's most indebted country is unlikely to be able to honor a March 20 bond payment of 14.5 billion euros ($18 billion), Parker said today in an interview in Stockholm. Efforts to arrange a private sector deal on how to handle Greece's obligations would constitute a default, he said.

Prime Minister Lucas Papademos is scheduled to meet tomorrow with a group representing private bondholders after a five-day break to hold talks on forgiving at least 50 percent of the nation's debt in the euro area's first sovereign restructuring. Greece's official creditors begin talks Jan. 20 on spending curbs and budget cuts that will determine whether to disburse additional aid.

"The so-called private sector involvement, for us, would count as a default, it clearly is a default in our book," Parker said. "So it won't be a surprise when the Greek default actually happens and we expect it one way or the other to be relatively soon."

'Restricted Default'

Fitch in July downgraded Greece to CCC, seven levels below investment grade. The rating company in July also said Greece will be considered a "restricted default" after a European bailout plan was unveiled that included getting bondholders to assume part of the cost.

The yield on Greek benchmark debt maturing in October 2022 fell 45 basis points to 33.6 percent, after hitting a record of 36.14 percent on Dec. 21.

The proposed debt swap aims to slice 100 billion euros from the 205 billion euros of privately owned Greek debt, with the help of 30 billion euros in cash for incentives to reach a debt- to-gross domestic product ratio of 120 percent by the end of 2020. That will relieve Greece of some 4 billion euros in annual debt servicing costs. The ratio was 162 percent in 2011, according to IMF estimates.

The targeted ratio is a "realistic outcome" for the talks, European Central Bank President Mario Draghi said yesterday at the European Parliament in Strasbourg. Slower growth and a lack of progress on reforms since the Oct. 26 summit make it essential that the talks address how Greece will meet its debt obligations, Draghi said.

Debt Ratio Rising

The "government debt-to-GDP ratio is 160 percent and rising so it can't pay its debts," Parker said. "Plan A is for the PSI negotiations to resume and reach a voluntary agreement and if that isn't possible, I would expect an involuntary debt exchange to be set up and for them to complete that by that date in March."

Two days of talks in Athens between Greece and the Institute of International Finance, which represents the country's private creditors, broke off on Jan. 13 without an agreement. Frank Vogl, an IIF spokesman, blamed the breakdown in talks on disagreement over the coupon, or interest rate, to be paid on new bonds and on discord among different authorities involved in the talks.

The country is surviving on the 8 billion-euro loan paid last month by the IMF and the EU, and proceeds from Treasury bill sales. Greece raised 1.6 billion euros in a sale of 13-week bills today at a yield of 4.64 percent, compared with 4.68 percent at the previous such sale on Dec. 20.

Standard & Poor's last week downgraded nine euro area nations, including cutting France's AAA rating. The downgrades by S&P suggest countries can fail to meet their debt obligations and Greece will prove to be the latest example, Bill Gross, who runs the world's biggest bond fund at Pacific Investment Management Co., said in a Twitter post yesterday.

Europe's debt crisis is likely to be "long and drawn out," Parker said. "There is simply not enough political will to jump to some fiscal union, in the sense of joint and several guaranteeing of euro zone government debt."