How much recession can Greece take?

Investors are again being haunted with the prospect of a disorderly Greek debt default, as Greek political leaders dig their heels in and resist tough new austerity measures that are being demanded as the price of the country's latest €130 billion ($US170.6 billion) bailout.

In discussions that dragged on for five hours overnight, Greece's technocratic prime minister, Lucas Papademos, gave the leaders of the country's major political parties a brutal choice: either they sign up to tough new spending cuts and labour market reforms, or the country would be plunged into a chaotic default.

But although the 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 – agreed to around €3 billion in spending cuts, they resisted demands for Greece to cut private sector wages.

The 'troika' – representatives of the European Union, the European Central Bank and the International Monetary Fund – want Greece to cut private sector wages in order to boost the country's competitiveness. But most Greek political leaders, and Greek union bosses, are fiercely critical of the idea of wage cuts because they believe they will only worsen the country's depression. "They're asking for more recession than the country can take,” complained Antonis Samaras, who heads up the centre-right New Democracy party, as he left the meeting.

According to reports on Greek television, Papademos has now set a deadline of midday today for the three leaders to let him know whether they agree in principle with the austerity measures, before talks resume later today.

While there is a recognition that it is important for Greek politicians to be seen by voters to be putting up a fight, there is a growing fear that all the political grandstanding could backfire, and plunge the country into bankruptcy. Athens faces an important €14.5 billion bond repayment on March 20, and could be forced to default unless its second €130 bailout package is in place.

Meanwhile, the eurozone is not disguising the fact that its patience with the antics of Greek politicians is wearing thin.

During a conference call on Saturday, eurozone finance ministers threatened Athens that it faced default next month unless it agreed to the new loan conditions. And Jean-Claude Juncker, who heads up the group of eurozone finance ministers, has bluntly warned Athens of looming bankruptcy unless it accepts the conditions of its latest €130 billion bailout. "If we were to establish that everything has gone wrong in Greece, there would be no new program and that would mean that in March they have to declare bankruptcy,” he said in an interview with the German publication Der Spiegel.

The European Commissioner for Fisheries, Maria Damanaki, who is of Greek nationality, explained the growing European frustration with Greece. In an interview with the Greek weekly To Vima, she argued that the politics of the past two years had put the country on a "disastrous path”.

"We promised changes that we failed to implement. We've talked a lot and done little. We agreed to schedules that we didn't meet. We thus created the impression of a deeply unreliable country”, she said.

Meanwhile, most Germans think that the eurozone would be better off without Greece, according to a survey published on Sunday by the German daily Bild. In the survey, 53 per cent of Germans who were surveyed thought that Greece should return to the drachma, compared with 34 per cent who believed that Athens should keep the euro.

And an overwhelming 80 per cent of Germans were opposed to the idea of giving the country any more money until it implemented the troika's reforms.