Greek political leaders announced just before the Eurogroup meeting yesterday that they had clinched a deal on economic reforms, detailing €3 billion more of austerity measures needed to secure a second EU bailout.
But eurozone finance ministers demanded more steps and a parliamentary seal of approval before providing the aid.
The EU and the International Monetary Fund are exasperated by a string of broken promises by Athens and weeks of disagreement over the terms of a €130 billion bailout, with time running out to avoid a default.
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Three conditions
Finance ministers of the 17-nation eurozone meeting in Brussels warned there would be no immediate approval for the rescue package and said Athens must prove itself first.
Jean-Claude Juncker, who chairs the Eurogroup, set three conditions, saying the Greek parliament must ratify the package when it meets on Sunday and a further €325 million of spending reductions needed to be identified by 15 February, after which eurozone finance ministers would meet again.
"Thirdly, we would need to obtain strong political assurances from the leaders of the coalition parties on the implementation of the programme," Juncker told a news conference after six hours of talks in Brussels. "Those elements needs to be in place before we can take decisions."
"In short, no disbursement before implementation."
April elections
Facing elections as soon as April, Greece's party leaders have been loath to accept the lenders' tough conditions, which are certain to be unpopular with increasingly angry voters.
Greek Finance Minister Evangelos Venizelos left the Brussels talks quickly, telling reporters Greece faced a choice of staying in the euro or leaving.
"Until the next Eurogroup, which will most likely convene on Wednesday, our country, our people should think and make a final strategic choice," he said, saying a critical decision needed to be made over private sector bondholder losses (PSI).
"If we see the future of our country within the eurozone, within Europe, we should do what we have to do for the programme to be approved and for the PSI to be concluded on time before major bonds expire in March."
The Greek government called on the coalition parties to support the deal when it comes to parliament, saying the Brussels meeting showed they were only half way there.
"The first step is for parliament to approve it, showing political parties' commitment to the targets and the policies of the new economic programme. It's time all of us to assume their responsibilities. We need action, not words," government spokesman Pantelis Kapsis said in a statement.
Final deal inches closer
The euro rose on news of a deal, which appeared to remove – at least for now – the risk of a hard default by the eurozone's most indebted country, which faces a major bond redemption on 20 March. The risk premium investors charge for holding Italian and Spanish bonds fell.
However, IMF spokesman Gerry Rice said talks would continue to finalise details, making clear no agreement had been concluded yet. He said managing director Christine Lagarde wanted assurances Greece would stick to the agreed policies whatever the outcome of looming elections.
Venizelos said Athens also had an outline deal with private creditors on a bond swap in which they would give up some 70% of the value of their Greek bond holdings, reducing Athens' €350 billion debt pile by about €100 billion.
"The draft agreement on private-sector involvement to decrease the Greek debt burden is practically finalised, even if it will be formally approved as part of the overall package, I trust next week," EU Economic and Monetary Affairs Commissioner Olli Rehn told reporters.
European Central Bank President Mario Draghi said he was "quite confident" that all the components of a Greek debt deal would fall into place and hinted the central bank could provide indirect help without breaching a treaty ban on financing governments.
Athens now must get all elements in place, including the parliamentary approval, within six days. A debt sustainability analysis will also be finalised by then, Rehn said, adding that there would have to be even tighter EU oversight of Greece.
The International Monetary Fund says Greece's debt-to-GDP ratio must be cut to 120% by 2020, but it is not clear the measures Athens is being called on to enact will be sufficient to hit that target.
'Social uprising'
The measures will mean a big fall in the living standards of many Greeks, now in the fifth year of a deep recession. Deputy Labour Minister Yannis Koutsoukos, a socialist, resigned over a package he said would be "painful for working people".
Greece's two major labour unions called a 48-hour strike for Friday and Saturday against the reforms.
"The painful measures that create misery for the youth, the unemployed and pensioners do not leave us much room," secretary general of the ADEDY union, Ilias Iliopoulos, told Reuters.
"We won't accept them. There will be a social uprising."
Earlier, Panos Beglitis, spokesman for PASOK socialists who are in coalition along with the conservative New Democracy party and far-right LAOS, said the minimum wage would be cut by 22% as part of efforts to make the economy more competitive.
Asked how the differences over pension cuts had been resolved, a government official told Reuters: "There will be cuts in other areas of public spending and we will see how we will minimise reductions in pensions."
€15 billion missing in bailout plan
Greece has fallen deeper into recession since it received a first bailout in May 2010. Latest unemployment figures showed the jobless rate hit a record 20.9% in November, with youth unemployment a staggering 48%.
The sharper-than-forecast contraction has opened a funding gap of about €15 billion in the bailout package agreed last October to bring Greece's debt down to about 120% of gross domestic product from nearly 160% today.
Two sources said the government would promise spending cuts and tax rises worth €13 billion from 2012 to 2015, almost double the €7 billion originally pledged.
To help fill the remaining gap, Athens has urged the ECB to forego profits on its Greek bond holdings in a move that could raise €12 billion or more.
The bank's 23-member Governing Council discussed the issue on Thursday. Draghi hinted there was a route to do that, while ruling out the ECB sustaining any loss.
Asked whether the ECB could give back profits on Greek bonds with a face value of about €50 billion which it bought at a discount in the market, Draghi indicated it would have to pass on the profits to governments when they were realised.
"If the ECB distributes part of its profits to its member countries as part of the capital key, that's not monetary financing," he said.
