Any sense that Germany would crack the lid on the Greek pressure cooker vanished on Sunday night, when it demanded that Greece pass tough reform measures through its parliament by Wednesday if it is to avoid economic calamity and exit from the euro.
While the three-day legislation deadline is not insurmountable, it threatens to heat up the revolt inside Syriza, the ruling party led by Prime Minister Alexis Tsipras. Mr. Tsipras was elected in January on an anti-austerity platform and did a U-turn last week, alienating the far left wing of his party.
Greeks widely expect Mr. Tsipras to dump the Syriza rebels and perhaps form a new coalition government in an effort to ram through the austerity laws at lightning speed. "We all think a major cabinet reshuffle is coming, with all anti-deal ministers to be replaced," said Achilleas Kasimidis, a salesman at a technology company in Athens. "A national unity government would also be an option."
A document produced Sunday by the Eurogroup – the region's finance ministers – insists that Greece pass laws to boost its value-added tax (VAT) and reform bankruptcy laws and the notoriously expensive pension system, among other changes. If Greece agrees, its request for €53-billion ($75-billion) in European Union bailout funds, plus funds to stabilize its crippled banks, might be met.
The new conditions placed on Greece on Sunday dashed any hopes that an agreement between Greece and its creditors would be reached before markets open on Monday morning, allowing the banks to reopen and potentially persuading the European Central Bank to boost liquidity injections into the banks. They have been closed for two weeks, draining the life from the Greek economy.
A document sent by the Eurogroup to the euro-zone leaders on Sunday said "The Eurogroup … came to the conclusion that there is not yet the basis to start the negotiations for a new programme. Only subsequent to legal implementation of [the reform] measures can negotiations on the memorandum of understanding commence."
German Finance Minister Wolfgang Schaeuble has made it abundantly clear that he would be happy to see Greece leave the euro zone, even temporarily, unless it guarantees all the creditors' reform and implementation demands. "I think the Germans' patience has finally run out," Nigel Farage, European parliament member and leader of the UK Independence Party, told CNBC Sunday night.
At the same time, the conditions appeared to remove the threat that Greece would be forced out of the euro zone as early as Monday – the suggestion made only a few days ago.
As she arrived Sunday afternoon to attend the euro zone leaders' meeting, German Chancellor Angela Merkel sounded a cautious note. "The most important currency has been lost and that is trust," she told the media in Brussels. "That means that we will have tough negotiations and there will be no agreement at any price."
Mr. Schaeuble floated the idea of Greece taking a five-year leave from the euro unless its government offered sweeping reforms to make its economy competitive.
But French President François Hollande said a suspension from the euro zone is a non-starter. "There is no such thing as a temporary Grexit," he said. "There is only a Grexit or no Grexit."
While Greece did not emerge with a deal on Sunday, it did manage to divide its paymasters. France and Italy, the second- and third-largest euro zone economies, are pushing hard for a rescue package that would allow Greece to pay its bills and stay inside the euro zone, keeping the 19-country region intact. They are up against Germany, Finland and a couple of other countries, which are lobbying for extremely tough conditions to be placed on Greece.
Italian Prime Minister Matteo Renzi told the Rome newspaper Il Messaggero that the time had come to stop pushing Greece to the wall. "Now common sense must prevail and an agreement must be reached," he said. "Italy does not want Greece to exit the euro and to Germany I say: Enough is enough."
The European split threatens to widen over the next few days. "The rift in this question runs right through Europe," Austrian Chancellor Werner Faymann said. "The German Finance Minister seriously wants to push Greece out of the euro. The German Chancellor, on the other hand, is very anxious to find a constructive solution. And it's like that in many countries."