ATHENS // Rival Greek political parties were hammering out a critical power-sharing deal yesterday to secure a €130 billion (Dh656 billion) rescue package - but markets remained wary and European leaders kept up pressure by holding back a vital bailout loan.
The Socialist prime minister, George Papandreou, and the conservative leader, Antonis Samaras, former college roommates in the US, held fresh negotiations by phone hours after reaching the landmark agreement to form a coalition for the next 15 weeks.
The new administration's main job would be passing the new bailout package - agreed by international creditors on October 27 - before holding early elections.
Mr Papandreou, who was expected to resign late last night, also called EU leaders and the German chancellor, Angela Merkel, who were reacting warily to Athens's 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," said the chancellor's spokesman, Steffen Seibert.
Alain Juppe, the French foreign minister, 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 rescue loan programme from euro zone partners and the International Monetary Fund.
But all agree it was 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 loan instalment until Greece formally approves the new debt deal.
The Greek government has said it could go bankrupt within weeks without the money.
In Athens, the former vice president of the European Central Bank, Lucas Papademos, was being tipped as the most likely new head of the Greek government, that would serve until a general election on February 19.
None of the people being considered have been announced publicly.
The power-sharing talks were due to end yesterday, with the former EU environment commissioner, Stavros Dimas, a conservative, also being considered for a senior government position, two conservative officials told the Associated Press.
Whoever takes over would inherit the thankless task of pushing through the harsh measures required as conditions of Greece's latest bailout, further cutting spending, privatising and firing public sector workers.
Any new prime minister would have to work within a deeply dysfunctional political system only months from elections, amid growing popular unrest and anger.
"This is only a short-term fix for Greece," wrote Ian Bremmer, the president of Eurasia Group, a political risk consultancy.
The Athens Stock Exchange closed up 1.39 per cent at 761.04, rebounding on speculation that the troubled Italian premier, Silvio Berlusconi, could soon resign, allowing another new government to press through economic reforms so that Italy could 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," said Silvio Peruzzo, an analyst at Royal Bank of Scotland.
Mr Papandreou agreed to step down midway through his term after his disastrous proposal to hold a referendum on the new bailout spooked markets and creditors. The proposal was withdrawn.
Greece has endured 20 months of punishing austerity measures in exchange for the international rescue loans.
The efforts by Mr 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."
As the negotiations continued into the night, Greece's far-right LAOS party said it was ready to join a new coalition government on the condition it does not approve further austerity measures or force privatisations.
"We will back this effort, under three conditions - no more cuts of wages and pensions, no concession of national sovereignty, no fire sales [of state assets]," the LAOS party leader, George Karatzaferis, said after meeting the country's president.
LAOS has 16 deputies in Greece's 300-seat parliament.
* Associated Press and Reuters