Nerves fray as Greece extends bail-out talks

He noted that party chiefs have agreed to reduce public spending by 1.5 percent of the country's GDP, cut wages and labour costs and recapitalise their cash-strapped banks. The key outstanding issues are further wage cuts and a pensions freeze

"The prime minister and political leaders will meet again tomorrow to complete the consultations on the content of the programme," Papademos' statement said.

A spokesman for the Socialist Pasok party noted that political leaders have been given a new deadline of noon on Monday to clinch a deal, so that Papademos' government can present it to a teleconference or a snap meeting of eurozone finance officials.

But as one EU official told this website, "with Greece, no deadline is for sure."

The ultimate deadline is 20 March, when Greece has to repay €14.5 billion worth of bonds.

If it does not get the new EU and International Monetary Fund (IMF) bail-out it cannot make the payment. But even if a deal is clinched today, it will take between four and six weeks to implement so-called private sector involvement (PSI).

Apart from the new austerity measures, the EU and IMF have said there will be no bail-out unless private bondholders agree to write off more than 50 percent of their Greek debt.

In a sign of fraying nerves, Greek daily Kathimerini reports that Papedemos has threatened to resign if the talks fall apart.

For his part, eurozone chief Jean-Claude Juncker told Der Spiegel there is a real risk of Greece going bust. "If we were to establish that everything has gone wrong in Greece, there would be no new programme, and that would mean that in March they have to declare bankruptcy," he said.

Top banker Josef Ackermann - the head of both German financial giant Deutsche Bank and the International Institute of Finance, the body representing private bondholders in the PSI negotiations - warned that if Greece does go bust, the whole EU financial system will suffer.

"It's not only about Greece, it's about Europe," he said at a security conference in Munich, Germany on Saturday. He added that other troubled euro-countries would immediately be affected, with Portugal increasingly seen as the most vulnerable to the shock of a Greek default.

Greek politicians now find themselves between a rock and a hard place - no political party wants to be associated with additional austerity measures ahead of upcoming elections in April.

Antonis Samaras - the leader of the conservative New Democracy party - has said the country is "being asked for more austerity, which it is unable to bear." The IMF has itself admitted that the social costs are dangerously high.

Greece is now in its fifth year of recession. Unemployment is at 20 percent and the number of homeless people on the - currently freezing - streets of Athens has increased by 25 percent since 2009. In protest at the planned cuts, the country's biggest trade unions have called for another 24-hour strike on Tuesday.

Meanwhile, according to official figures, some €65 billion has been pulled out of Greek banks over the past two years, out of which around €16 billion was sent abroad - mainly to British and Swiss accounts.

On the PSI side of the Greek deal, Germany fiercely opposes the European Central Bank or national governments taking losses on their Greek bonds along with the private sector.

German Chancellor Angela Merkel and French President Nicolas Sarkozy are to hold talks in Paris on Monday in a meeting likely to focus on the Greek problem.