Greece's government is preparing a document with a list of painful reforms needed to clinch a new financing package, a government official said on Tuesday, moving Athens one step closer to a deal needed to avoid a chaotic debt default.
Officials worked on the draft of a text on the 130-billion-euro bailout plan that will be put to political leaders for approval as strikers protesting against more austerity tussled with police outside parliament.
The Greek government is working on the final document that will be discussed at the political leaders' meeting later in the day, the official told reporters.
Safe haven German government bond futures reversed gains on news of progress in the talks, while the euro also rose against the dollar.
Prime Minister Lucas Papademos negotiated through most of the night with Greece's European Union and IMF lenders, ending at 4 a.m. (0200 GMT) when a 24-hour strike began against the reforms, closing tourist sites and disrupting public transport.
Papademos, a technocrat parachuted in to lead the Greek government late last year, must persuade leaders of the three parties in his coalition government to accept the EU/IMF conditions for the 130-billion-euro ($170-billion) rescue.
We must find a solution today, said another government official. A third official said one of the main outstanding issues was the level of cuts on top-up, supplementary pensions.
Papademos is also due to meet Charles Dallara, who is negotiating on behalf of banks and insurers on a planned bond swap to ease Greece's debt burden.
With Greece's future in the euro zone in question, German Chancellor Angela Merkel said time was of the essence and there are growing signs that euro zone officials have lost patience.
They say the full package must be agreed with Greece and approved by the euro zone, European Central Bank and International Monetary Fund before February 15.
This is to allow time for complex legal procedures involved in a bond swap deal - under which the value of private investors' holdings of Greek debt will be cut radically in value - so Athens can get rescue funds before March 20 when it has to meet heavy debt repayments or suffer a chaotic default.
DON'T BOW YOUR HEADS!
The funds come at the price of deeply unpopular wage and spending cuts that have infuriated ordinary Greeks struggling through the country's fifth year of recession.
Scuffles broke out as protesting strikers tried to climb steps leading to parliament, chanting: No to mediaeval labor conditions, don't bow your heads, show resistance!
Riot police rushed to block their way as some protesters sprayed red paint on the steps and a wall next to the tomb of the unknown soldier, which commemorates the fallen in past Greek campaigns. Other protesters burned a German flag and a Nazi flag.
Ceremonial guards in traditional Greek kilts, a top Athens tourist attraction, were evacuated and the protesters were pushed back on to the adjacent Syntagma Square, where riot police created a defensive line.
However, the turnout was noticeably smaller than at other protests in recent months, with heavy showers dampening the marchers' spirits. They were saved by the rain. The weather didn't allow all protesters to take to the streets and show their anger, Ilias Iliopoulos, general secretary of the public sector union ADEDY, told Reuters.
One civil servant watching the protests expressed a weary anger at the austerity imposed already, which has almost halved her monthly pay to 900 euros, and higher taxes.
I wouldn't mind paying for the next two years if I knew austerity would take us somewhere, said 32-year-old Leto Papadopoulou. But this crisis seems endless. In 10 years from now, I will be a lost case for the labor market.
Early on Tuesday, the strike called by the private and public sector unions GSEE and ADEDY began to bite, bringing the country's main port to a standstill.
No ships departed from Piraeus port this morning, as a result of the seamen's strike, said a coast guard official.
In central Athens, tourists were locked out of the Acropolis and public transport was disrupted during the morning rush hour. State hospitals ran on a skeleton staff and teachers, bank employees and telecoms workers were due to join the action.
NOT AS FAR APART AS BEFORE
Finance Minister Evangelos Venizelos said earlier talks with the troika of lenders - the European Commission, ECB and IMF - were not going well. Unfortunately the negotiations are so tough that as soon as one chapter closes, another opens, he said after meeting troika officials on Monday night.
But a source close to the negotiations said that despite the complexity of the talks, especially on very unpopular labor reforms, Greece and its lenders were making progress.
We are not as far from each other as we were before, the official said, adding the two parties were working to finalize the outline of the memorandum of understanding, or policy program Greece needs to agree to in order to get the bailout.
With elections likely in April, the party political leaders - who Europe insists must all sign up to the austerity program - face an obvious incentive not to heap more misery on their voters. But if they do not, an unruly default looms.
After weeks of argument major issues have not been settled.
Greece has yet to identify spending cut measures worth 600 million euros this year, out of a total austerity package of about 3.3 billion euros, a government official said.
The troika was also demanding that private firms' wage costs be cut by about a fifth to improve competitiveness. This would be done by reducing the minimum wage by as much as 20 percent or by scrapping some industry-wide wage bargaining agreements.
Jean-Claude Juncker, who chairs the group of euro zone finance ministers, backed a plan put forward by Merkel and French President Nicolas Sarkozy to set up a special escrow account into which Greece would make future interest payments as a means of guaranteeing that creditors were consistently paid.
However, Juncker denied that the euro was in danger because of the debt crisis. The euro will outlive us all, he told German Inforadio on Tuesday.
($1 = 0.7646 euros)
(Additional reporting by Yannis Behrakis, Renee Maltezou, Karolina Tagaris and Harry Papachristou and Gareth Jones in Berlin; Writing by Deepa Babington and David Stamp; Editing by Mike Peacock)