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BERLIN (Reuters) - The United States, Germany and other G7 nations agreed Saturday to write off up to 80 percent or $33 billion of Iraq's Paris Club debt, which could pave the way for a wider international accord, officials said.

A source at the 19 nation Paris Club of creditors said the deal was likely to be finalized Sunday, adding: "There is an agreement between the main creditors on (cancelling) 80 percent of the debt."

The breakthrough came in talks between German Finance Minister Hans Eichel and U.S Treasury Secretary John Snow on the margins of a meeting of finance ministers and central bank chiefs from the G20 group of rich and developing nations.

A final Paris Club deal would end a dispute between the United States, Germany and France over how much of Iraq's debts they should waive, and could serve as a benchmark for relief deals with other creditors such as Saudi Arabia, Kuwait and eastern European states.

Germany's Eichel had said earlier that the tentative agreement meant the 80 percent of Iraq's Paris Club debt would be broken up into three stages of 30 percent, 30 percent and 20 percent, respectively.

"We both agreed that we have to be prepared to achieve a substantial reduction in Iraq's debt," Eichel told reporters after meeting Snow.

A senior U.S. official said Iraq's foreign debts had swollen to around $125 billion -- from a pre-war estimate by the International Monetary Fund (IMF) of $120 billion -- a third of which was owed to the 19 Paris Club countries.

"It's a good arrangement for Iraq ... and it will also show how the world community can come together in a very cooperative way to address a problem," he said.

TIMETABLE IN QUESTION

German Chancellor Gerhard Schroeder told reporters Iraq was a rich country because of its oil reserves and if its economic outlook improved noticeably there could be grounds for further discussions on the third tranche.

One G20 source said the debt write off would take place over eight years, but another said that was a timetable that was unacceptable to the United States.    Continued ...

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