Boiling point of a Greek bailout

Athens missed another deadline for its €130 billion ($US172.5 billion) bailout deal overnight, as the leaders of the country's three main political parties continued to bicker over last-minute spending cuts.

Lucas Papademos, Greece's interim technocrat prime minister, is now expected to hold a meeting with the three political leaders tonight, in the hope of reaching a deal in time for Thursday's meeting of eurozone finance ministers.

But time is running out for the debt-strapped country. Athens faces an important €14.5 billion bond repayment on March 20. Unless the country's new bailout deal is in place by then, the country could be forced to default.

Meanwhile, hostility to the new measures is running hot. Overnight, thousands of Greeks staged an anti-austerity rally outside the Greek parliament, as part of a 24-hour general strike which shut down public transport, schools and government offices.

European officials are becoming increasingly dismayed at Athens' tardiness in agreeing to the austerity measures being demanded by the 'troika' – the European Union, the European Central Bank and the International Monetary Fund – in exchange for the latest bailout.

But Greek political leaders believe that they have made some major concessions, by dropping their opposition to a 20 per cent cut in the minimum wage and agreeing to 15,000 immediate job cuts in the public sector. The main sticking point now is agreeing to the extra €3 billion in spending cuts that are being demanded by the troika. Although Greek politicians have ticked off on major spending cuts on healthcare, defence and local government, they still have to find a further €600 million in spending cuts to meet the troika's target for reducing the country's budget deficit.

At the same time, the three leaders – former prime minister George Papandreou, from the Socialist party, Antonis Samaras from the conservative New Democracy Party and George Karatzaferis from the extreme right LAOS party – are deeply aware that they're paying a heavy political price for agreeing to measures that can only plunge the country deeper into depression.

Recent opinion polls show that the support for the Socialist party has slumped to 11.1 per cent, while that of LAOS is down to 5 per cent. Even the leading party, New Democracy, has seen its support dwindle to 21.7 per cent. The polls suggest that if general elections were held now, the three parties would struggle to form a workable parliamentary majority, even if they could find a way to overcome their deep ideological differences.

Meanwhile, support for Greece's far-left splinter parties is climbing, with polls suggesting that the three main leftist parties now command a combined 24 per cent of the vote.

With Greece facing a general election in as early as two months' time, it is likely that new political parties – ones have not agreed to stick to the draconian terms of the latest bailout – will hold sway.

But German Chancellor Angel Merkel and French President Nicolas Sarkozy (or "Merkozy” as they've been dubbed) are acutely conscious of the frail Greek political consensus. As a result, they've hatched a plan that will protect their banks even if Greek political leaders backslide on their austerity measures.

Under the new plan, funds from Greece's latest bailout will be paid into a special account that would be managed by the country's creditors. This means that if Athens fails to deliver on its budget cuts and reform measures, Europe will be able to cut off aid to Greece, while still ensuring that the country's bondholders are paid.

This deft Merkozy strategy will effectively strip Athens of its biggest bargaining chip – the threat that, unless the bailout funds keep flowing, it will default on its debts, and trigger a major financial crisis.