Greece's prime minister scrambled to convince lenders and politicians to sign off on a €130 billion rescue package today, after his finance minister said just hours remain before the euro zone leaves the country to its fate.
A technocrat appointed in November, prime minister Lucas Papademos is trying to ensure cash-strapped Greece avoids sinking into a chaotic default when big bond redemptions come due next month.
His finance minister said Athens had only until tonight to clinch a second financing package from lenders, after euro zone ministers bluntly told him they were ready to abandon Greece without proof it could push through painful cuts.
"We are on a knife edge," finance minister Evangelos Venizelos said yesterday after what he called a "very difficult" conference call with euro zone counterparts. "The moment is very crucial."
Euro zone finance ministers told Greece it could not go ahead with an agreed deal to restructure privately held debt until it guaranteed to implement reforms.
The ministers had hoped to meet tomorrow to finalise the second Greek bailout, which has to be in place by mid-March if Athens is to avoid a chaotic default, but the meeting was postponed because of Greek reluctance to commit to reforms.
Instead, the ministers held a conference call yesterday to take stock of progress on the second financing package.
"There was a very clear message that was conveyed from all participants of the teleconference ... to the Greeks that enough is enough," one euro zone official said. "There is a great sense of frustration that they are dragging their feet.
Greek officials have emerged increasingly despondent after each round of talks, complaining that the troika were stubbornly refusing to yield on demands to cut the minimum wage level, axe holiday bonuses and fire public sector workers.
Mr Papademos then faces an even tougher task convincing party chiefs in his own national unity coalition to back the reforms demanded by the lenders at the risk of ruining their chances at national elections expected in April.
He is expected to meet the lenders in the early afternoon before huddling with the socialist, conservative and far-right party leaders in his coalition later in the day.
The conservative New Democracy and the far-right LAOS party in particular have staunchly opposed further wage and spending cuts, arguing that risks pushing Greece into an even deeper recession and imposing more pain on struggling Greeks.
"The truth is that people are tired. They can't put up with more austerity," New Democracy spokesman Yannis Michelakis told the Real News weekly.
LAOS leader George Karatzaferis, meanwhile, rejected what he called the "ultimatum" to strike a deal today.
Mr Papademos's government implored them to be more cooperative. "We have carried out superhuman negotiations. And so political leaders must help us now," a senior government official said, adding that the party chiefs were free to join the Sunday talks with lenders if they wanted.
Greece's lenders, who want spending cuts worth about 1 per cent of GDP - or just above €2 billion - this year, have demanded all political leaders endorse the cuts irrespective of the outcome at the polls.
Athens has wrangled without success for weeks on the bailout package and a debt restructuring plan, putting itself dangerously close to bankruptcy as €14.5 billion of debt falls due in mid-March.
The lack of agreement has kept financial markets on tenterhooks as investors fret a messy default could cause shockwaves across the financial system, triggering a credit crunch and sending the global economy back into recession.
Athens says it has notched up some progress by agreeing a plan to recapitalise Greek banks and details on privatisation, even if bigger issues on reform remain unresolved.
A senior banker told Reuters the recapitalisation would occur mainly via common shares with restricted voting rights.
The talks have moved slowly also because the troika wants agreement on all parts of the complex Greek rescue deal - including any contribution by public creditors like the ECB - before approving the bailout, a source close to the talks said.
The rescue package, drawn up in October, also includes a bond swap under which banks and insurers will take real losses of about 70 per cent on the Greek debt they hold in a bid to ease Greece's debt burden by €100 billion.
But Greece's deteriorating economic prospects and struggles with reform have fed concern that will not be enough to get its debt back to a manageable level and Athens wants public creditors like the ECB to also take part in the bond swap.
Reuters