Greece's prime minister is seeking backing from the country's political leaders for more austerity measures, with the International Monetary Fund warning that long-term commitment to reforms is key to securing a new bailout.
Athens must persuade the European Union and IMF in the coming days that it will implement long-delayed reforms and slash spending further to clinch a deal on a 130 billion euro ($170.18 billion)rescue plan it needs to avoid a messy default.
With a long-delayed agreement with private sector creditors to cut the country's debt mountain by 100 billion euros nearly wrapped up, the EU and Greece are racing against the clock to complete negotiations on the bailout by the end of this week.
The prospect of elections as early as April further complicates the talks, with political leaders in Prime Minister Lucas Papademos's coalition eager to distance themselves from any cuts that herald more pain for ordinary Greeks.
We need an agreement with political leaders for the negotiations with the troika, said a government official who declined to be named.
The official said Papademos, a technocrat put in charge to see the country through the most recent part of the crisis, was considering holding a meeting of political leaders by Friday.
Antonis Samaras, whose conservative party shares power in the coalition, has said he would reject any further austerity, saying it risked plunging Greece even further into crisis. Labor unions also oppose cutting wages in the private sector.
This worries Greece's lenders, who have grown increasingly exasperated with Athens' repeated failure to meet fiscal and reform targets and want to make sure it will deliver this time.
We need assurances that whoever is in power after the election and reasonably wishes to make some changes in economic policy will make sure they are in line with the targets and the basic framework of the agreement, Poul Thomsen, the head of the IMF's mission for Greece, told daily Kathimerini on Wednesday.
But he also called for a new policy mix, which could help get political parties on board.
We will have to slow down a little as far as fiscal adjustment is concerned and move faster - much faster - with implementing reforms, he said, adding that there are limits to what society can take. Thomsen is in Athens to negotiate the new bailout together with senior EU and ECB officials.
The minimum wage level may have to be lowered and holiday bonuses cut to make Greece's firms more competitive, Thomsen said in the newspaper interview. Greece may also have to fire civil servants, he said, though the bulk of savings in the public sector payroll will come from retirements.
Greece's industrialists called for a meeting with labor unions on Thursday to agree a joint position on these demands and help reach a deal on the bailout.
Labor unions have rejected cutting the minimum wage and slashing holiday bonuses and unions and employers are seeking other ways to cut labor costs.
Time is running short and social partners' responsibilities are getting bigger, said the head of the industrialists union, Dimitris Daskalopoulos.
More reforms and slower deficit reduction would be a policy shift compared with the country's first 110-billion euro bailout, which relied heavily on tax increases and less on spending cuts and which some economists blame for social unrest and the country's worst post-war recession.
Greece has been dragged deeper and deeper into recession since it was first rescued by the EU and IMF in May 2010.
The economy is set to contract by at least 3 percent this year, while Greece's lenders projected it would grow by 1.1 percent when they drafted the first bailout. Athens blames the deeper-than-expected recession for its failure to meet deficit targets while the lenders point to the delays on reforms.
In a sign of Greece's economic struggles, manufacturing remained in deep recession in January with a record drop in production and a sharp decline in new orders leading to more job losses, a survey showed on Wednesday. Production fell at a record pace as new order volumes and work backlogs continued to decline sharply, the Markit survey showed.
Some analysts said Thomsen's suggested policy switch would not work unless Greece's lenders, including the IMF, increase their aid for Greece above the 130 billion euro mark.
It makes sense to put the emphasis on structural reforms and less on deficit reduction but this strategy will mean that Greece needs extra support and, at the moment, I don't see anybody willing to do that, said Christoph Weil, a Frankfurt-based economist at Commerzbank.
Greece's lenders have demanded it make extra spending cuts worth about 1 percent of GDP - or just above 2 billion euros - this year, including big cuts in defense and health spending. Thomsen said he was optimistic a deal would be reached soon.
Talks about the program will be completed very soon, it is a matter of days, Thomsen said in the remarks, which were published in Greek.
Greek bank shares jumped on hopes the lenders would not be nationalized after both the finance minister and Thomsen indicate that banks would escape nationalization when they are recapitalized.
Athens' negotiations on a debt swap plan with private creditors on the other hand could wrap up as early as Wednesday, bankers and officials have said, but ECB action to further reduce the burden is seen as imperative and is proving a sticking point.
($1 = 0.7639 euros)
(Additional reporting by Renee Maltezou; Writing by Ingrid Melander; Editing by Stephen Nisbet/JEREMY GAUNT)