Greek politicians refused to yield to the austerity demands of their “troika” paymasters despite a stark warning from German chancellor Angela Merkel that the stand-off threatened the “entire eurozone”.
The three main political parties in Greece’s national unity government were reportedly given until 11am to respond to international demands on tougher spending cuts. But the deadline passed with no response – except for politicians claiming there was no deadline.
Sources in Athens said the talks between Greece and its creditor banks were on hold while Lucas Papademos, the Greek prime minister, vacillated between negotiations with his own politicians and the “troika” officials from the European Union (EU), the International Monetary Fund (IMF) and the European Central Bank (ECB).
In less than six weeks Greece must repay a €14.5bn (£12bn) bond. It will be unable to meet this without the release of a €130bn international bail-out programme – which will only come when austerity measures are agreed.
At a press conference with French President Nicolas Sarkozy on Monday, Ms Merkel: “There can be no new Greece programme if agreement is not reached with the troika… All those who bear responsibility in Greece must know – we will not deviate from this position.”
She added: “I honestly can’t understand how additional days will help. Time is of the essence. A lot is at stake for the entire eurozone.”
Mr Sarkozy said: “The Greek leaders have made commitments and they must respect them scrupulously. Europe is a place where everyone has their rights and duties. Time is running out, it needs to be concluded, it needs to be signed.”
George Karatzaferis, leader of Greek far-right party LAOS said: “I will not contribute to the explosion of a revolution from destitution that will burn all of Europe.”
Greece’s trade unions announced a snap 24-hour general strike today in protest against the new austerity measures.
Romania offered a reminder of the dangers of the protests when Emil Boc, prime minister, resigned after weeks of public protests over auserity measures.
Greek officials said politicians in Athens had agreed to €3bn cuts in healthcare, defence and local government over the next two years. They have also accepted a 20pc cut in the minimum wage and 15,000 public sector job losses. But there is still disagreement over another €1.2bn of cuts.
The Eurogroup, which comprises eurozone finance ministers, is poised to meet to discuss a deal over the austerity measures, once they are decided. Greece must also agree a €200bn debt restructuring – thought to be the biggest ever voluntary deal – with its private creditor banks.
Meanwhile, new data showed Greek debt spiked to 159pc of GDP in the third quarter of 2011 compared with 138.8pc a year earlier and 154.7pc in the second quarter.
Markets were rattled by the deadlock. The Eurostoxx 600 closed down 0.2pc, France’s CAC closed down 0.7pc and the FTSE slid 0.2pc.
David Jones, chief market strategist at IG Index, said: “With a relatively quiet news week until the EU and UK interest rate announcements on Thursday, progress or otherwise in Greece is likely to dictate market direction.”