MAKE-or-break talks to prevent Greece from defaulting on its debts escalated last night as EU finance ministers rejected the latest offer from Greece's bondholders and warned the Greek government it needed to step up its reform efforts.
The increasingly perilous situation in Athens overshadowed two days of finance minister meetings in Brussels this week, where leaders also grappled with a new treaty on financial controls and the future of Europe's bailout fund.
The new treaty was agreed ahead of next week's summit of EU leaders, but ministers failed to agree to any increase in the size of the €500m ESM bailout fund, despite pressure from the International Monetary Fund and other observers.
EC economics chief Olli Rehn ended the meetings on a downbeat note by predicting that the European recovery was likely to be "postponed to the second half" of the year.
Greece's private bondholders have accepted a 50pc cut in the redemption value of their bonds, but they also demanded an interest rate of at least 4pc on the new Greek bonds they will be given. EU finance ministers resolved this week that the new interest rate should not be above 3.5pc.
Speaking after yesterday's meeting, German finance minister Wolfgang Schauble described the "final" offer from bondholders as "like what happens at every bazaar".
"You do not need to be impressed by that," he said. "I am a good negotiator . . . that does not intimidate me."
Mr Rehn said it would be "preferable" to achieve agreement with Greek creditors "in the coming days" and stressed Athens would not be getting its next tranche of bailout money unless conditions were met.
The Greeks are due to draw down €130bn of bailout money in March as part of their country's recovery programme. Austrian Finance Minister Maria Fekter said the cash would not be handed over unless Greece's political parties agreed, in writing, to implement vital reforms.
"It is clear that we need convincing and firm commitments from all the leaders of the political forces," Mr Rehn stressed.
Dutch finance minister Jan Kees De Jager agreed, saying that "obviously" Greece and its banks "need to do more".
Ratings agency Standard & Poor's also weighed in on the Greek crisis, with an official saying it was likely that Greece would be downgraded to "selective default" regardless of what was decided in the coming days.
Policymakers claimed good progress was being made on a treaty for German-inspired measures that will force financial discipline on EU member states, but they vowed to keep the ESM bailout fund's firepower at €500bn, despite speculation an increase to €750bn was imminent. The issue is set to be revisited in March.