AP -

Two steps forward, one step back. So goes the frenzied effort across Europe to bail out Greece and save it from a potentially devastating default on its debts.

A meeting of the finance chiefs of the 17 euro countries to discuss Greece’s second multibillion bailout planned for Wednesday was called off after Athens failed to deliver on several demands made by its partners in the currency union.

The last-minute cancellation of the meeting - which was expected to give the green light for a key debt-relief deal with private creditors linked to the bailout - shows the eurozone wants much tougher guarantees now from Athens before giving it an extra €130 billion ($171 billion) in rescue loans, on top of €110 billion ($145 billion) granted in 2010.

Tensions between Athens and other European capitals have hit new highs this week. While the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.

“It has appeared that further technical work between Greece and the troika is needed in a number of areas,” said Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers.

GREECE As Europe huffs and puffs, Greece fights to stay afloat

While the Parliament in Athens faced down violent protests over the weekend to approve a far-reaching new austerity package, the cabinet of ministers remained locked in talks Tuesday evening over how to save an extra €325 million demanded last week by the eurozone.

The other finance ministers also want assurances from the leaders of Greece’s two main political parties that they will implement the promised spending cuts and reforms after national elections expected for April. That demand is especially tenuous, with some commentators questioning whether it undermines democracy in Greece.

Juncker said neither of these demands had been met in time for the meeting to go ahead.

Instead, the finance ministers will speak in a teleconference on Wednesday and plan to meet in person on Monday in Brussels.

Greece is still optimistic that it will eventually get the bailout. “The adoption with overwhelming majority (in Parliament) of the program I think makes the positive decision of the upcoming Eurogroup mandatory,” Manolis Othonas, Greece’s deputy minister for civil protection, said in Parliament Tuesday.

But after keeping Greece alive through bailout loans for almost two years - and seeing the country repeatedly miss its targets - some of the richer euro countries like the Netherlands or Germany are reluctant to commit new money without firm assurances.

Many analysts also doubt whether the economic reforms that are part of the bailout program can really restore a country that is facing a fifth year of recession in 2012, and whose economy shrank a massive 7 percent in the fourth quarter of 2011 compared with a year earlier.

While still promising Athens help as long as it does its part, some politicians have been downplaying the potential fallout of a default by Greece.

In a TV interview Monday night, German Finance Minister Wolfgang Schaeuble stressed that Europe was doing everything to help Greece to avoid bankruptcy, “but Greece itself of course must want that.”

IN DEPTH

If Greece were to default on its debt, Europe “is better prepared now than two years ago,” Schaeuble told German public broadcaster ZDF.

Other officials, however, are still warning that a default could have unexpected consequences for the rest of Europe and the world economy.

“Right now, practically all the pieces are in place (for a bailout deal),” Angel Gurria, the head of the Organization for Economic Cooperation and Development said Tuesday. But if it unravels, “although we are better off today than we were two years ago for that kind of scenario, we really don’t know which unexpected consequences may happen.”

He said that squabbling among policymakers was creating unnecessary harm to broader financial sentiment.

“Don’t allow any holdout to blackmail the world economy to continue paying a very high price for the uncertainty.”

REUTERS - The Greek government came under pressure on Monday to convince sceptical European capitals that it would stick to the terms of a multi-billion-euro rescue package endorsed by lawmakers during violent protests on the streets of Athens.

Parliament backed drastic cuts in wages, pensions and jobs on Sunday as the price of a 130-billion-euro ($172 billion) bailout by the European Union and International Monetary Fund, as running battles between police and rioters outside parliament drove home a sense of deepening crisis.

The EU welcomed the vote, but told Greece it had more to do to secure the funds and avoid a disorderly default next month that would have "devastating consequences".

GREECE As Europe huffs and puffs, Greece fights to stay afloat

Euro zone finance ministers meet on Wednesday, and the fragile ruling coalition of Prime Minister Lucas Papademos has until then to say how 325 million euros of the 3.3 billion euros in budget savings will be achieved.

A government spokesman said political leaders also had until Wednesday to give a written commitment that they will implement the terms of the deal, reflecting fatigue in Brussels over what EU leaders say have been a string of broken promises.

The spokesman said an election would be held in April, when deep public anger over the second round of austerity since 2010 could drive voters to the left and right and test Greece's commitment to the cuts.

First reaction from euro zone paymaster Germany was cautious.

"Now we need to wait and see what comes after the legislation," Economy Minister and deputy Prime Minister Philipp Roesler said on German television.

"We have taken one step in the right direction but we are still far from the goal," he said.

Austrian reaction, too, was muted.

"Adopting the austerity package is one thing, implementing it is another, and this is something in which we have to place great store," said Austrian Vice Chancellor and Foreign Minister Michael Spindelegger.

Greece needs the international funds before March 20 to meet debt repayments of 14.5 billion euros, or suffer a chaotic default that would send shockwaves through the euro zone.

Worst violence in years

EU Economic and Monetary Affairs Commissioner Olli Rehn said a disorderly default would have devastating consequences for Greek society.

"I am quite confident that the other conditions, including the identification of concrete measures of 325 million euros, will be completed by the next meeting of the Eurogroup, which would then decide on the adoption of the programme," he said.

Papademos had warned of a "social explosion" if lawmakers rejected the deal and Greece defaulted. But the unrest outside, and a rebellion by 43 parliamentarians of the ruling coalition, suggested Athens might already be on the brink.

"The people yesterday sent a message: Enough is enough! They can't take it anymore," said Ilias Iliopoulos, general secretary of public sector union ADEDY.

Firefighters on Monday doused the smouldering remains of cinemas, shops and banks set ablaze in the capital during the worst violence in years.

The riots spread to Greece's second city of Thessaloniki, towns across the country and the islands of Crete and Corfu.

IN DEPTH

Critics on Monday said more austerity would only condemn the economy to an ever-deepening downward spiral, but Greek political leaders have offered few alternatives.

Conservative New Democracy leader Antonis Samaras says the country should focus more on stimulating growth with tax cuts and privatisation, while some ordinary Greeks say they have had enough of the message from Brussels and that a messy default can be no worse than the painful medicine they are currently being asked to swallow.

"Yesterday's vote in the parliament may have saved the country temporarily from default, but the Greek economy is going bankrupt and the country's political system is failing," the head of the Greek Commerce Confederation, Vassilis Korkidis, said in a statement.

The cuts include a 22 percent reduction in the minimum wage and 150,000 jobs from the public sector workforce by 2015.

The deal provides for a bond swap to ease Greece's debt burden by cutting the real value of private-sector investors' bond holdings by some 70 percent.

Renegotiation?

Greece would have missed a Feb. 17 deadline to offer a debt "haircut" to private bondholders if the vote had not passed.

"It will be concluded in March," Greek government spokesman Pantelis Kapsis told reporters.

Asian shares and the euro gained modestly on Monday and bank shares lead European stocks higher.

Kapsis said an election would be held in April, when conservative New Democracy leader Antonis Samaras is tipped to win but not outright, leading to efforts to form a new coalition or a repeat vote.

Ordinary Greeks 'furious' after vote and riots By Nathalie SAVARICAS in Athens

In comments that could further sow doubt in the minds of euro zone finance ministers, Samaras indicated on Sunday that Athens might yet try to renegotiate the deal.

"I am calling on you to vote for the new loan agreement because I want to avoid falling into the abyss, to restore stability," he told Sunday's parliamentary debate, "so that we can have the possibility tomorrow to negotiate and change the policy that is being imposed upon us today."

"We have to exist first to be able to change it."

The rioters were a minority, but spoke to the groundswell of anger among Greeks who say their living standards are already collapsing and more austerity will only deepen their misery. Unemployment in Greece reached 20.9 percent in November, and half of young Greeks are jobless.

In all, 150 shops were looted in the capital and 48 buildings set ablaze. Some 100 people - including 68 police - were wounded and 130 detained, a police official said.

The Attikon cinema, housed in a neo-classical building dating from 1870, was left a blackened shell. Terrified Greeks and tourists fled the rock-strewn streets and the clouds of stinging teargas, cramming into hotel lobbies for shelter as lines of riot police struggled to contain the mayhem.

Nikos Kourkoulos, a 53-year-old municipality gardener who has seen his monthly salary cut by 600 euros since 2008, vented his anger: "When will we exit the crisis? Why can't they just tell us when this will be over?"