FRANKFURT, Germany – Greece wants a break from the terms of its eurozone bailout loans, saying they're suffocating its economy.
Germany, the biggest backer of two bailouts worth 240 billion euros (currently $271 billion), says Athens must pay what it owes.
The two sides, debtor and creditor, are dug in and posturing.
Yet analysts think a negotiated compromise over the coming weeks is possible — though far from certain. Greece could yet run out of money and leaving the euro.
A Greek exit from the euro — or "Grexit" — would unleash more turmoil in Greece. Its effects on the eurozone and global economies are less clear. The eurozone has new safeguards to stabilize markets, but some experts think "Grexit" would disrupt Europe's fragile economy and permanently undermine confidence in the 19-country currency union.
Time is pressing: Greece's bailout program ends on Feb. 28. Rather than seek an extension, Athens wants to scrap the entire deal and agree on a new one by May.
Without the bailout money, Greece will default on its debts as they come due this year. That could cause the European Central Bank to cut off financing to Greek banks. And that in turn could force the Greek government to reintroduce its own currency so it could print money and bail them out.
Here are the main sticking points, and possible compromises.
Greece's new left-wing government elected Jan. 25 says its debts are so big that realistically cannot be paid back.
Greece is being required to cut spending and raise taxes to pay down debt. But that has hurt the economy in the meantime — unemployment has soared to 26 percent and the economy has suffered a plunge similar to that of the U.S. in the Great Depression of the 1930s.
Greece's debt amounts to 176 percent of annual economic output this year. Most of that debt — nearly 80 percent — is owed to the people who bailed it out: the other European governments, the International Monetary Fund, and the European Central Bank.
Creditor countries — led by Germany, the eurozone's largest member, have publicly opposed debt forgiveness. First of all, it's taxpayer money. More than that, economists say that if Greece is allowed a break, the other euro countries that had to be bailed out — Ireland and Portugal, for instance — would be justified in asking for relief, too.
Though eurozone states are against writing off the loan amounts, analyst Doug Fenwick at Fitch Ratings says they are "are reasonably likely" to grant Greece easier repayment terms. That could mean lower interest rates or longer repayment dates. Whether that's enough to make Greece's debts sustainable is hard to say, but it might settle things for now.
Greece has already received some breaks, including longer repayment, lower interest, and a return of profits made by the European Central Bank on bonds it holds.
On the other hand, if talks break down and Greece defaults and leaves the euro, it's hard to see how it could repay its debts to its eurozone partners with a devalued new currency.
The new Greek government wants to ease back on the amount of spending cuts it is required to make in exchange for the rescue loans.
Under its bailout agreement, Greece is being asked to run budget surpluses — that is, not counting interest payments on debt — of 3 percent of GDP this year and 4.5 percent in 2016. The previous Greek government had reduced the deficit by cutting pensions, firing thousands of workers, and raising taxes.
Yet all those cutbacks weighed heavily on the economy and fueled popular resentment — a major reason Syriza won last week's election with a promise to reject the deal and seek better terms.
One possibility is to let Greece run a smaller surplus before interest payments. That would still represent substantial progress compared with 2010, when its overall deficit hit a gigantic 12 percent of GDP.
Syriza's program calls for rehiring government workers. But it remains to be seen how far they will go. "It's not as if the government is rehiring everyone who lost their job," said Renwick. "It doesn't sound the death knell of the negotiations."
In fact, much of the painful cutting has already been done by previous Greek governments, under creditor pressure. "The end of austerity was upon us anyhow," Renwick said.
While it has made progress slashing its budget, Greece has made slower progress in making its country a better place to do business.
So-called structural reforms include reducing unnecessary paperwork and red tape, removing protections for individual professions, improving notoriously slipshod tax collection and fighting corruption.
Syriza has proposed rolling back some pro-business reforms. They want to restore cuts in the minimum wage, bring back a 13th month of pension payments, reinstate employee protections and lift restrictions on collective bargaining agreements.
Creditors may not give much ground here. Some structural reforms can slow the economy temporarily but should pay off in the long turn. Syriza has talked about making the rich pay more in taxes and tightening collection; that could be common ground with creditors.