Four EU finance ministers have rejected what private bond holders of Greek debt have termed their "best offer" and must now work rapidly to craft a deal between the Greek government and their creditors in order to avoid a catastrophic default.

Reuters:

Euro zone finance ministers on Monday rejected as insufficient an offer made by private bondholders to help restructure Greece's debts, sending negotiators back to the drawing board and raising the threat of Greek default.

At a meeting in Brussels, ministers said they could not accept bondholders' demands for a coupon of four percent on new, longer-dated bonds that are expected be issued in exchange for their existing Greek holdings.

Banks and other private institutions represented by the Institute of International Finance (IIF) say a 4.0 percent coupon is the least they can accept if they are going to write down the nominal value of the debt they hold by 50 percent.

Greece says it is not prepared to pay a coupon of more than 3.5 percent, and euro zone finance ministers effectively backed the Greek government's position at Monday's meeting, a position that the International Monetary Fund also supports.

Jean-Claude Juncker, the chairman of the Eurogroup countries, said Greece needed to pursue a deal with private bondholders where the interest rate on the replacement bonds was "clearly" below 4.0 percent, stating:

"Ministers asked their Greek colleagues to pursue negotiations to bring the interest rates on the new bonds to below 4 percent for the total period, which implies the interest comes down to well below 3.5 percent before 2020."

The EU won't give Greece the next intsallment of bailout money until they can strike a deal with their bond holders. But Greece has a debt payment coming due early in March and any deal struck will take at least 4-6 weeks to dot all the "i's" and cross all the "t's." That means the negotiators have a rapidly closing window where unless they can get something done very soon, Greece will miss its debt servicing payment and default on its obligations.

It will eventually come down to the bond holders taking 3.5% or getting nothing if Greece defaults. They will probably take the deal.