Rival Greek political parties were hammering out a historic power-sharing deal Monday to secure a €130 billion ($182 billion) rescue package, but markets remained wary and European leaders kept up pressure by holding back a vital bailout loan.
Socialist Prime Minister George Papandreou and conservative leader Antonis Samaras, former college roommates in the U.S, held fresh negotiations on the telephone Monday, hours after reaching the landmark agreement to form a coalition for the next 15 weeks.
The new administration's main job will be passing the new bailout package — agreed by international creditors on Oct. 27 —before holding early elections.
Papandreou, who is expected to resign later Monday, also telephoned EU leaders and German Chancellor Angela Merkel, who were reacting warily to Athens' latest political drama.
"Europe, and the German government too, must be able to see that the Greeks are serious, that it is not just about announcements but about actions," Merkel spokesman Steffen Seibert said.
French Foreign Minister Alain Juppé added: "Things are headed in the right direction .…But what's important is that the bailout plan for Greece gets ratified."
Greece has survived since May 2010 on a €110 billion ($154 billion) rescue-loan program from eurozone partners and the International Monetary Fund, but all agree it's not enough. A second rescue package has been created in which private bondholders have agreed to cancel 50 per cent of their Greek debt.
Frustrated with Greece's political disagreements, the country's creditors have frozen the next critical €8 billion ($11.21 billion Cdn) loan installment until Greece formally approves the new debt deal. The Greek government has said it could go bankrupt within weeks without the money.
In Athens, former European Central Bank vice-president Lucas Papademos was being tipped as the most likely new head of the Greek government that would serve until a Feb. 19 general election. None of the people being considered have been announced publicly.
The power-sharing talks were due to end Monday, with former EU Environment Commissioner Stavros Dimas, a conservative, also being considered for a senior government position, two conservative officials told the AP. They asked not to be named, citing the sensitivity of the negotiations.
The Athens Stock Exchange closed up 1.39 per cent at 761.04, rebounding on speculation that troubled Italian Prime Minister Silvio Berlusconi could soon resign, allowing another new government to press through economic reforms so that Italy can avoid financial disaster.
"What is clear is that the European partners are becoming more and more intransigent with Greece and they will want evidence of concrete advances on Monday evening," said Silvio Peruzzo, an analyst at Royal Bank of Scotland.
Papandreou agreed to step down midway through his term after his disastrous proposal to hold a referendum on the new bailout spooked markets and credits alone. That proposal was swiftly withdrawn.
Greece has endured 20 months of punishing austerity measures in exchange for the international rescue loans. The efforts by Papandreou's government to keep the country solvent have prompted violent protests, crippling strikes and a sharp decline in living standards for most Greeks.
"I don't expect anything," Athens resident Stavros Stournaras said of the new political agreement. "When people truly go hungry and there's an uprising, then things will change."