Europe made little progress Wednesday in averting a new crisis that could force Greece to drop the euro.
Greece’s new government, led by left-wing party Syriza, says half a decade of austerity has condemned the country to a downward spiral that is impoverishing its people and making it impossible to repay its enormous debts.
It wants to tear up the existing international bailout program and win six months of bridge financing to give it breathing space to negotiate a longer term solution.
Greek finance minister Yanis Varoufakis met his eurozone peers as a group for the first time in Brussels. He described the talks as “intensive and constructive.”
Jeroen Dijsselbloem, the Dutch finance minister who chaired the talks, said progress had been made in understanding Greece’s position. But there was no agreement on how to advance the discussions, other than to meet again on Monday, he said.
Greece wants to roll back 30% of the commitments it has made to the European states that have lent it money. It wants to reduce its total debt burden, which at 175% of GDP is the second highest in the world, raise the minimum wage and pensions, and reverse some tax hikes.
The two sides were far apart as the talks began, and little of substance appeared to have changed by the time they ended.
Europe says Greece must honor the terms of the existing rescue loans, before it can talk about ways to ease the burden and boost growth.
The impasse threatens to cut off the lifeline keeping Greek banks afloat later this month, and could ultimately force Greece to abandon the euro. Analysts say the chances of a ‘Grexit’ are higher than at any point since the second round of the Greek debt crisis in 2012.
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With other countries such as Ireland, Portugal and Spain having worked through their own painful bailout programs, Europe is in better shape than a few years ago to cope with such a shock. And less inclined to give Greece much ground.
“For a number of eurozone government[s] …it’s important that Syriza should fail and be seen to fail,” said Andrew Lilico, executive director of consultancy Europe Economics.
Lilico said endorsement of Syriza’s policies was the last thing the Spanish government would want to see because it would hand a huge political victory to a similar opposition party in Spain.
Varoufakis said he hoped agreement could be reached on Monday, but the search for a compromise that is acceptable to Greece and to taxpayers in countries such as Germany and France may take more time.
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Europe needed to recognize that Greeks had voted for change, while Greece had to understand that commitments must be respected, said the European Commission’s finance chief Pierre Moscovici.
“The [bailout] program is our legal reference, it is on this basis — inside this framework — we can work,” he said.
Greece’s biggest creditor, Germany, reinforced that view.
“We have this program, this program will be brought to an orderly conclusion or we won’t have a program,” finance minister Wolfgang Schaeuble said bluntly.
Greek Prime Minister Alexis Tsipras repeated Tuesday night that he would not ask for a formal extension of the bailout, which is due to expire on February 28.
Without an extension, the European Central Bank could decide as early as next week to turn off emergency financing for Greek banks.