Greek leaders failed yesterday (8 February) to agree on a reform and austerity programme, the price of a financial bailout to avoid a messy default, forcing Finance Minister Evangelos Venizelos to go to the country's financial backers with an incomplete deal.
Venizelos will travel to Brussels later today, where his fellow eurozone finance ministers had hoped he would present a commitment to make budget savings worth €3.3 billion this year.
But after all-night talks with leaders of the three parties in the Greek coalition and with officials from the EU and IMF, Venizelos emerged shortly before dawn to say that one issue remained unresolved.
"I am leaving for Brussels in a short while with the hope that the Eurogroup meeting will be held, and a positive decision on the new programme will be taken," he told reporters.
"The financial survival of the country in the coming years depends on the new programme … It is time of responsibility for everyone."
Venizelos did not say what the problem was or why he was not certain the Brussels meeting on the €130 billion bailout would go ahead.
A spokesman for the socialist PASOK party said disagreement over pension reform had been the stumbling block.
A senior government official said the party chiefs had agreed on how to make about 90 percent of the promised savings, leaving a relatively small hole in the calculations.
Athens had to close this gap quickly, said the official. "Greece has another 15 days to specify fiscal savings worth €300 million," he said on condition of anonymity.
Earlier, Prime Minister Lucas Papademos said he hoped the party leaders could sort out their differences before the eurozone finance ministers meet this evening in Brussels.
Prospects for a long-awaited deal on Greece's second bailout since 2010 appeared to brighten when the finance ministers' chairman Jean-Claude Juncker called the Brussels meeting – which IMF managing director Christine Lagarde will also attend – to examine the bailout and accompanying bond swap.
On offer from the European Union and International Monetary Fund is a package involving the new rescue funds – which Greece needs to avoid a chaotic default when big debt repayments fall due on March 20 – and a bond swap with private creditors to ease the nation's huge debt burden.
In return, Athens must accept conditions requiring big cuts in many Greeks' living standards. The smallest member of the coalition, the far-right LAOS party, was particularly uncomfortable with the measures.
"The president of LAOS George Karatzaferis expressed serious reservations," said Papademos, a former central banker brought in when a PASOK government collapsed last November.
Panos Beglitis, spokesman for PASOK which is in the coalition along with LAOS and the conservative New Democracy party, said they had disagreed over the level of cuts to supplementary pensions needed to safeguard the pension system.
However, Beglitis told reporters the leaders had agreed to cut the minimum wage by 22% as part of efforts to make the economy more competitive. Plans to scrap bonuses paid to private sector workers at Christmas, Easter and in the summer had been dropped.
Two sources close to the Athens talks said the government would promise spending cuts and tax rises totalling €13 billion from 2012 to 2015, almost double the seven billion it originally pledged.
International lenders are demanding that the party leaders commit themselves in writing to implement the programme of pay and pension cuts, structural and administrative reforms.
Eurozone officials say the full package must be agreed with Greece and approved by EU, ECB and IMF before 15 February so that complex legal paperwork can be completed in time for a bond redemption deadline on March 20.
However, the leaders have been loath to accept the lenders' tough conditions, which are certain to be unpopular with voters. They face parliamentary elections possibly as early as April.
Other elements of the deal have been gradually slotting into place, including the bond swap with private creditors to ease Greece's debt burden by reducing the value of government bonds held by banks and insurers.
The new bonds would have an average interest rate of around 3.5%, said state NET TV, with creditors having to swallow a 70% cut in the value of their debt holdings.
Ratings agency Standard & Poor's said Greece would probably fail to achieve manageable debt levels if it relied on the 70% reduction in the value of bonds held by private creditors, putting the onus on the ECB to take losses too.
With banks and insurers having mostly agreed to take a writedown, Athens and the commercial banks are urging the ECB to forego profits on its Greek bond holdings to help cut the debt to a sustainable level. That could raise €11 billion or more.
But ECB policymakers are still divided on what contribution the bank could make to a restructuring of Greek debt, two euro zone monetary policy sources said.
"There is no agreement yet. Some people on the Council still oppose this," said one monetary policy source, adding that ECB President Mario Draghi had not yet revealed his position.
Greece must underscore its political commitment to economic reforms if it is to receive a new €130-billion bailout package that needs to be in place by March to ensure Greece does not default on its massive debt.
Private-sector involvement is a key part of the rescue plan as they are being asked to voluntary accept a nominal 50% cut in the value of their Greek bond holdings in return for a mix of cash and new bonds, although there are suggestions that may not now be enough.
But talks are not progressing as fast as hoped. The issue is pressing, since a new bailout for Greece from the International Monetary Fund and the EU is hanging in the balance pending the success of private-sector involvement.
The failure to agree on the private sector's role comes at a critical moment in the euro crisis, adding to market jitters.