Prime minister Lucas Papademos faces an uphill struggle to win over fellow party leaders on austerity reforms and secure a deal with foreign lenders to avoid a disorderly default in March
Greece's economic future is still hanging in the balance after the prime minister, Lucas Papademos, held crucial talks with party leaders in an attempt to rally support for the stringent reforms Athens must enact in return for aid.
With at least one political leader in the coalition government publicly refusing to endorse the rescue package, it was far from certain whether Papademos would win backing and keep bankruptcy at bay when the talks resume on Monday.
Before the meeting, the Greek finance minister, Evangelos Venizelos, described negotiations with foreign lenders as being "on a razor's edge". To avert a disorderly default, Greece must secure financial support by 20 March when it faces €14.5bn (£12bn) of loan repayments. Monday is seen as a sort of financial crunch day for Greece by creditors who will decide whether Athens deserves to be bailed out for a second time to the tune of €130bn.
"The moment is very crucial," Venizelos said after emerging from 12 hours of talks with officials representing the EU, the European Central Bank and the International Monetary Fund, the "troika" propping up the near-insolvent Greek economy. "Crucial issues which concern the future of the country and the Greek people remain [unresolved]. The distance separating the procedure being completed with success from stalemate … is very small. It's a very fine line. We are on a razor's edge," he said.
A subsequent teleconference with finance ministers from the eurozone had been "very difficult", Venizelos said. "There is great impatience and great pressure not only from the three institutions that make up the troika but also from eurozone member states," he added.
On Sunday night, Charles Dallara, the banker who represents private bondholders currently negotiating a debt swap deal with the Greek government, also held talks with Papademos. Further raising the pressure on Athens, eurozone ministers said the country would not be able to close a deal on restructuring its debt unless it implemented essential changes to modernise its economy.
Wage and pension cuts are at the heart of the discord. While international creditors remain adamant the reduction of the minimum wage and abolition of two salaries granted to workers as bonuses in the private sector are key to boosting competitiveness, the government has called the measures "a red line" which it will not cross.
Other demands include a 35% drop in supplementary pensions and the cutting of 150,000 public sector jobs in organisations due to be closed down.
Greek officials have argued that the cutbacks will be self-defeating by deepening a recession that has already brought the economy to its knees. Party leaders, trade unions and employers' associations have predicted social upheaval if the measures are applied. "If it doesn't suit us and the troika doesn't budge we will not take the package," said Giorgos Karatzaferis, who heads the populist, far-right Laos party, before heading into the meeting. "We will not give in to ultimatums."
With general elections due to take place in the spring, politicians are keen not to be associated with policies that have spawned such popular opposition.
But highlighting the gravity of the moment, Jean-Claude Juncker, who chairs the eurogroup of finance ministers, voiced the possibility of default. "If we were to establish that everything has gone wrong in Greece, there would be no programme and that would mean that in March they have to declare bankruptcy," he said, in comments to the German news weekly Der Spiegel.
Greek insiders said the possibility of bankruptcy loomed larger than at any other time. "The troika is not negotiating, it's dictating," an insider said. "When you negotiate you expect both sides to move, but they're like a rock. They're basically saying it's this or default. Our sense is that they would prefer the shock of a Greek default than throwing money into a country they have come to see as a bottomless pit. The problem is the measures are so hard, so painful, that it is hard to see how all three leaders will accept them."