European leaders were given a stark warning last night that Greece's debt burden remains unsustainable, despite the €65bn (£57bn) in bailout funding the country has received since May 2010.
A "troika" mission of officials – from the European Central Bank, the International Monetary Fund and the European Commission – gave a withering verdict on Athens' progress towards stabilising its public finances.
The troika comes as close as it can, given the political contraints under which the mission operates, to saying that the existing bailout strategy for Greece is not working.
And the warning will heap pressure on European leaders to agree on significant levels of debt relief for Greece at the weekend's summit in Brussels.
The text of the report, parts of which were leaked last night, reveals that the nation's debt position remains "extremely worrying". It also contains a forecast that Greek debt will hit 181 per cent of GDP next year.
The draft report says that, "when compared with the outlook of a few months ago, the debt sustainability has effectively deteriorated".
German politicians have been pushing for the face value of Greece's debt to be written down by more than 50 per cent, in order to ensure that private banks contribute to the cost of bailing out the country.
In July the banks agreed to reduce the face value of their holdings of Greek debt by 21 per cent, but in recent weeks financial lobbyists have been warning against further write downs.
Despite the bleak outlook for Greece's public finances, the troika recommends that the next €8bn aid tranche should be paid to Athens "as soon as possible".
It also emerged yesterday that European governments are close to agreement on the scale of the recapitalisation needed for the continent's banks. "About €100bn is needed for recapitalisation," said the Austrian Finance Minister Maria Fekter.
Financial markets experienced heavy sell-offs, prompted by signs of disagreement among European leaders.Reuse content