By Mehreen Khan, and Matthew Holehouse in Brussels 24 June 2015
Fundamental differences force finance ministers meeting to be aborted as creditors demand more cuts from the cash-strapped country
PM Tsipras leaving after an unsuccessful round of talks in Brussels last night
Greece's Eurozone future was thrown into fresh turmoil on Wednesday night as talks broke down after creditor powers demanded further austerity measures to release the funds the country needs to avoid a debt default.
Dashing tentative hopes that an agreement could be struck at European Union leaders summit on Thursday, a meeting of finance ministers was suspended after only an hour as Prime Minister Tsipras was summoned for further late night talks with his bail-out chiefs.
Earlier in the day, Greece's three lending institutions rejected Athens' €8bn reform plans, despite widely hailing it as a positive step forward only days ago. Greece now faces an imminent debt default and expiration of its bail-out June 30.
In a five-page set of counter proposals, creditors instead demanded Athens' Leftist government carry out more spending cuts, abolish exemptions on VAT and implement a root and branch overhaul of its pensions system.
The breakdown came after Athens seemed to renege on its previous commitments to end tax privileges for its islands and phase out supplementary pensions for the poorest.
But the government was quick to reject the new demands, attacking them as "absurd" and sure to bring "Armageddon" to the beleaguered economy .
Having been hauled back to Brussels on Wednesday morning, a wounded Mr Tsipras released an ambiguous statement suggesting ulterior motives behind lenders' fresh demands.
“The repeated rejection of equivalent measures by certain institutions never occurred before — neither in Ireland nor in Portugal," he said.
“This curious stance may conceal one of two possibilities: either they don’t want an agreement or they are serving specific interest groups in Greece.”
Mr Tsipras spent Wednesday holed up in more than seven hours of talks with European Commission president Jean-Claude Juncker, IMF managing director Christine Lagarde, and ECB chief Mario Draghi, as the sides sought to thrash out their differences. Talks are now set to continue into the early morning.
If no agreement is reached, matters could continue during another extraordinary summit lasting into the weekend.
Creditors are set to spend Thursday in talks with Athens at the sidelines of an EU summit
Sticking points continued to centre around the country's pensions system, with lenders demanding bolder reforms to end early retirement and larger contributions to the government's pensions pot. They also demanded defence spending cuts double to €400m in 2016.
The IMF, which has consistently voiced concern about Greece's ability to raise money through tax collection, also threw cold water on plans to hike corporation tax and apply a special levy on company profits over €500,000.
“You can’t build a programme just on the promise of improved tax collection, as we have heard for the past five years with very little result," Ms Lagarde told French magazine Challenges on Wednesday.
This raft of austerity measures are likely to be rejected by Mr Tsipras's Leftist faction, who see them as further contractionary measures on an economy which has already fallen into recession.
"The institutions tabled a new proposal which transfers the burden to wage earners and pensioners in a way which is socially unfair while at the same time suggesting measures to avoid the increase of burden on those who have" said a Greek government statement.
The counter proposals were leaked to the press, showing a swathe of corrections emblazoned in red ink.
Creditors took the red pen of austerity to Greece's reform proposals
Speaking ahead of the third meeting of finance ministers in less than a week, Finland's Alexander Stubb said Greece had yet to put any firm measures on the table.
"I would be quite positively surprised if we have a deal tonight. We haven't seen a concrete proposal. These are not decisions we take lightly and we have to work them through first."
Finance ministers will now meet again at 12pm on Thursday to lay the groundwork for European leaders who are due to meet at a council summit later in the day. Greece is set to dominate the agenda and will impinge on David Cameron's plans to discuss the UK's EU renegotiation.
The toxic deterioration in trust was laid bare after a nationalist Greek MP, whose party is a junior coalition partner, posted a photo of the infamous Auschwitz sign with an amended Greek caption: "We stay in Europe".
ANEL MP Dimitris Kammenos was later forced to apologise.
Post by Tsipras coalition partner Kammenos on FB: Auschwitz sign "Arbeit macht frei" replaced by "We live in Europe"
Speculation the EU was seeking political alternatives to Mr Tsipras's Leftist Syriza government were heightened after leader of Greece's centrist opposition party, To Potami also met with Brussels officials on Wednesday.
After a meeting with EU economics chief Pierre Moscovici, party leader Stavros Theodorakis said the country should "cut down on expenditures and excessive spending in the public sector, so that we can save money without imposing further taxes".
To Potami holds 17 seats in the Greek parliament, a margin which could be crucial in any vote to pass a deal through should it emerge from the fractious round of talks.