Greek unions and employers' associations have blocked a critical element of a rescue deal put forward by the European Union, accusing negotiators of crippling the economy with wage cuts and tax rises that will undermine growth.
In a joint letter to the Greek prime minister, Lucas Papademos, the employers and unions said a cut in the minimum wage was non-negotiable and the focus of talks should switch to the tax system, the complexity of regulation and corruption.
Athens is under pressure to wrap up talks on a bond swap and a €130bn (£108bn) bailout to avert a chaotic default. But hopes of an imminent deal faded after eurozone finance ministers put off a meeting expected on Monday to finalise the rescue. The ministers may meet later next week instead, said its head, Jean-Claude Juncker.
The unions' and employers' statement undermined efforts by the coalition government to agree a package of reforms as demanded by the country's international lenders if Athens is to receive the crucial €130bn second rescue package.
The three main parties in the coalition will meet on Saturday to discuss the situation, though sources close to the talks said a quick resolution was unlikely.
The refusal of unions to accept further wage cuts and the discovery earlier in the week of an extra €15bn hole in Athens's accounts are expected to force negotiators to rethink their tactics over the weekend.
The troika of officials from the International Monetary Fund, European Central Bank and EU want Greece to agree a package of spending cuts and reforms before they release the fresh €130bn of funds.
Splits have opened up inside the Greek coalition, which includes right- and leftwing parties, as leaders jockey for position in the runup to the elections scheduled for March.
Antonis Samaras, the leader of the conservative New Democracy (ND) party, which is leading in opinion polls, opposes cuts to pensions and to wages in the private sector, which he argues would deepen the current recession. The ND leader joined employers in proposing a salary freeze, though even this plan is rejected by unions, which have already accepted 14% wage cuts.
Disagreements within the ranks of the troika have also undermined the talks. The IMF's lead negotiator said earlier this week that the deepening crisis in Greece should persuade negotiators to relent on some cuts in favour of more far-reaching reforms.
The EU, with the backing of the German government, has made it clear that Greece must accept severe austerity measures as the price of a bailout.
The coalition is ready to agree a framework deal struck last week with banks that hold around €206bn of the country's debt. The banks are ready to accept a near-70% writedown in their loans to Greece in exchange for new 30-year bonds.
Weeks of negotiations with a team of bankers led by Charles Dallara, head of creditors group the International Institute of Finance, were close to being finalised last weekend before the talks became dependent on an agreement with the troika.
The government must conclude negotiations on its second rescue package "that will ensure debt sustainability of the country in the long run, and that will bring remedies to a number of serious problems that the Greek economy has had even before this crisis," said Amadeu Altafaj Tardio, spokesman for the EU's monetary affairs commissioner, Olli Rehn.
"And one of the main problems of the Greek economy, as we have said time and again here, is the chronic loss of competitiveness over the past decade," Tardio said. "Therefore all the elements, including elements linked to the labour market, wage formation, are part of these discussions."
Without the new bailout deal and agreement with lenders, Greece would go bankrupt in March, when it faces a €14.5bn bond redemption it cannot afford.
Government spokesman Pantelis Kapsis said the bond swap deal – known as the private sector involvement, or PSI – and the parallel negotiations with the troika were almost complete.
"The PSI, I think, in its basic elements is ready," he told Real FM radio, adding that talks with the debt inspectors were "in the final stage".
He added: "Within the day, we will have to finalise a series of alternative proposals which will be put before the political [party] leaders so we can take the final decisions."
A meeting between Papademos and the heads of the three parties in his interim coalition government was expected to be moved from Friday to Saturday, according to government officials.
Asked whether there was any alternative plan, Kapsis said that "there will necessarily be a Plan B" but that he did not want to discuss what it might be.
"Clearly, if we don't close the deal and we let go and say we will default on our own, we would be heading to an open bankruptcy. But I don't think anyone supports that."
Speaking from Brussels, Tardio said that while negotiations were "extremely complex," he believed an agreement was within reach "in the days to come".
Greece has been surviving since May 2010 on rescue loans from a €110bn bailout package from other eurozone countries and the IMF. In return, it has pushed through tough austerity measures, including public sector salary and pension cuts and repeated rounds of tax hikes.
Despite the measures, however, the country has failed to meet the targets set out in its bailout agreement, and now needs a combination of the bond deal and a second bailout to prevent a default that would send shockwaves through the single currency.
The Greek finance minister, Evangelos Venizelos, warned parliament that while the situation was difficult now, the alternative the country faced was catastrophic.
"We are not playing with fire when we are dealing with the fate of our people," he said. "Yes, the people have become poorer. Yes, we are living a drama. Yes, our standard of living has gone down. Yes, it is dramatic to be obliged to cut wages and pensions. But what we could live through, and we are trying to avoid, is indescribable."