Helena Smith Athens

Phillip Inman

Greece appeared intent on taking make-or-break talks over a €130bn (£108bn) rescue programme for the debt-choked country down to the wire last night as officials announced that the discussions would be delayed.

Confounding market expectation and European hopes, the government said agreement over the conditions attached to further aid could not be reached as a meeting between political chiefs and the prime minister, Lucas Papademos, had been deferred until today.

“All parties have basically accepted the deal,” said a source, referring to the three elements in Papademos’s national unity coalition. “But it is felt that the details have to be fine-tuned. The leaders want to know what they are signing up to.”

With Greece staring at bankruptcy – barely six weeks before it has to make bond repayments worth €14.5bn – EU officials expressed disbelief that politicians could not put their name to an accord.

Unable to conceal her exasperation, the German chancellor, Angela Merkel, said:  “I honestly can’t understand how additional days will help.

“Time is of the essence. A lot is at stake for the entire eurozone,” she said after holding debt crisis talks in Paris with the French president, Nicolas Sarkozy.

Papademos, a technocrat appointed with the purpose of passing the measures to secure the bailout deal, originally told the leaders to conclude talks by midday.

But the deadline came and went. Infuriated, Amadeu Altafaj-Tardio, a spokesman for the European economic affairs commissioner Olli Rehn, said: “The truth is we are already beyond deadline.”

Hours later, the prime minister’s office announced that the meeting would take place in the “late afternoon”. Rumours swirled that a deal was near, with headway made on the highly contentious issues of wage cuts in the private sector. In anticipation, the Athens stock market rallied.

By mid-afternoon, however, the meeting had been cancelled with officials saying Papademos would instead hold talks with visiting inspectors from the European Union, European Central Bank and International Monetary Fund, the “troika” propping up the insolvent Greek economy.

Acutely aware of the uproar that further austerity is bound to ignite among a populace that has endured unprecedented belt-tightening but seen little in return as Athens repeatedly misses fiscal targets,  Greece’s political class has worked furiously to disassociate itself from reforms increasingly seen as counter-productive.

Giorgos Karatzaferis, leader of the populist Laos party, said: “I’m not going to contribute to the explosion of a revolution [by backing] a wretchedness that will then spread across Europe.”

Powerful unionists warned that the reaction to any agreement entailing further austerity would be “ferocious and possibly uncontrollable”. A general strike was called for today.

Ilias Iliopoulos, at the civil servants’ union ADEDY, said: “We don’t care if they feel forced to accept such measures. The fact is 500,000 families are not even earning a euro a week and another million only have work sporadically.”

“If our politicians are foolish enough to agree to what our so-called saviours say, if they go ahead with yet more cuts and job losses, there will be an explosion.”

The deadlock immediately raised fears that three years into the crisis, Greece might finally be heading for the disorderly default international creditors, lead by Germany in the EU, have tried to avert.

But in Athens analysts insisted that the real threat to keeping bankruptcy at bay lay not so much in the negotiating arena as in a society seething with anger over the prospect of more austerity.

Theodore Pelagidis, professor of economics at Piraeus University, said: “This is about politicians wanting to convince Greeks that they have not just submitted to the demands of foreign lenders … all these delays are actually part of a show.”

As Greece failed to resolve its crisis yesterday, the Portuguese prime minister attempted to stave off speculation that his country would be the next to find itself in talks over a rescue package. Pedro Passos Coelho said Portugal’s debts were under control and could be contained without the need of a fresh injection from the EU.

“We will not allow what happened in Greece to happen here,” he said. “We hope that there will be the will to reach a new aid programme for Greece.” Coelho likened Portugal to Ireland, which he said had a debt structure that would delay the need for loan repayments until next year. “Our debt profile is very similar to Ireland’s, both in absolute value and in debt to GDP terms,” he said.

The fallout if a deal is blocked

Why have talks stalled?

The Greek government has failed to agree on a package of cuts and tax rises that the EU, IMF and the European Central Bank (ECB), known as the troika, insist must go ahead before they sanction €130bn of rescue funds.

Why does Greece need the money?

Greece has borrowed €350bn to keep its finances afloat. Some is from its banks, some from Greek savers, but the bulk is from overseas banks and the ECB. In a few weeks’ time loans worth €14.5bn face renewal. The troika is prepared to lend the cash if a deal is in place.

Who in Athens is blocking a deal?

Greece is under a coalition of one social democratic party (Pasok) and two rightwing parties (New Democracy and Laos) led by a team of technocrats, with Lucas Papademos as prime minister. The two rightwing parties are credited with preventing further cuts in wages.

Is the troika giving ground?

There is some pressure from the IMF to ease up on calls for cuts and to emphasise structural reforms. However, Brussels, with the support of the ECB and Germans, is sticking to its hard line.

And private banks?

A group representing banks with €205bn of Greek debt is prepared to write off 70% of their value if the troika package of cuts is in place.

What if Greece goes bust?

It would wipe out its debts, but almost certainly lead to its ejection from the euro. Advisers in Brussels say contagion will spread to Portugal, Spain and Italy.

Why would other states be affected?

If Greece is cut loose then US, Chinese and EU banks will withdraw their funds from other vulnerable countries, undermining eurozone solidarity. Portugal is running out of money and will probably need a bailout too. If Greece goes under, it could precipitate a run on Portuguese financial institutions. Italy and Spain are vulnerable, as is Ireland.

Phillip Inman

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