* Greek PM gives parties until Monday to agree to package

* Wage, spending cuts remain key sticking points

* Frustration reaches breaking point in euro zone

By Harry Papachristou and Renee Maltezou

ATHENS, Feb 5 (Reuters) – Greece’s coalition parties
must tell the European Union by Monday whether they accept the
painful terms of a new bailout deal as EU patience wears thin
with political dithering in Athens over implementing reforms.

Technocrat Prime Minister Lucas Papademos put on a brave
face on Sunday as he tried to get leaders of the three parties
in his government to sign off on terms of a 130 billion euro
rescue, which Greece needs soon to avoid a chaotic debt default.

Papademos said in a statement the party chiefs – who may
face angry voters in parliamentary polls as soon as April – had
agreed measures including wage cuts and other reforms as part of
spending cuts worth 1.5 percent of gross domestic product.

But a spokesman for the PASOK socialist party said a number
of major issues demanded by the “Troika”, representing Greece’s
EU, European Central Bank and IMF lenders, remained unresolved
late on Sunday.

Talks on the new bailout, which would be Greece’s second
since 2010, and an accompanying deal to ease the country’s huge
debt burden via its private creditors accepting deep losses on
the bonds they hold, have dragged on for weeks, stretching the
EU’s patience to breaking point.

Now the parties – PASOK, the conservative New Democracy and
far-right LAOS – must respond to a working group of senior euro
zone finance ministry officials who are preparing for a meeting
of their ministers later in the week.

“The political leaders must give their response in principle
by noon tomorrow, so that it can be taken to the Euro Working
Group in Brussels,” said PASOK spokesman Panos Beglitis.

BIG ISSUES

Beglitis made clear the leaders of the three parties still
had much to negotiate as the noon (1000 GMT) deadline for a
response nears, most notably on labour reforms demanded by
Greece’s lenders and on how to shore up domestic banks, which
are up to their necks in Greek government bonds now worth a
fraction of their face value.

“There are two big issues left – labour and banks … those
have been left for tomorrow,” he said.

No meeting of the Euro Working Group has been formally
scheduled for Monday but it could confer either by conference
call or schedule a face-to-face meeting at short notice,
depending on the outcome of talks in Athens.

PASOK and LAOS officials were meeting among themselves late
on Sunday night and Papademos was also due to meet troika
representatives again during the evening.

With Greece facing 14.5 billion euros of debt repayments in
March, a bill it cannot meet without further bailout funds, the
stakes could not be higher. Finance Minister Evangelos Venizelos
said earlier in the weekend that Athens had only until Sunday
night to clinch a second financing package from the lenders.

“We are on a knife edge,” he said on Saturday after what he
called a “very difficult” conference call with his euro zone
counterparts. “The moment is very crucial.”

Greek officials have emerged increasingly despondent after
each round of talks, complaining that the European Central Bank,
European Commission and International Monetary Fund troika was
stubbornly refusing to yield on demands to cut the minimum wage
level, axe holiday bonuses and fire public sector workers.

New Democracy and the far-right LAOS party in particular
have staunchly opposed further wage and spending cuts, arguing
they risk pushing Greece into an even deeper recession and
imposing more pain on struggling Greeks.

Papademos, a former central banker, said progress had been
made during Sunday’s five hours of negotiations with New
Democracy chief Antonis Samaras, PASOK head George Papandreou
and LAOS leader George Karatzaferis.

The budget cuts worth 1.5 percent of GDP this year appeared
to be more than the troika wanted initially although with the
Greek economy on a downward trajectory that is a moving target.

Greece’s lenders, initially demanded spending cuts worth
about 1 percent of GDP — or just above 2 billion euros — this
year, and insist all political leaders endorse the cuts
irrespective of the outcome of the elections.

Papademos said the measures to cut wages and non-labour
costs aimed to make the Greek economy more competitive, but he
gave few details.

LIMITED PROGRESS

Athens has wrangled without luck for weeks on the bailout
package and a debt restructuring plan, putting itself
dangerously close to bankruptcy.

The lack of agreement has kept financial markets on
tenterhooks as investors fret a chaotic default could cause
shockwaves across the financial system in Europe and beyond.

The slow progress has angered Greece’s European partners.
Euro zone officials say finance ministers told Greece on
Saturday it could not go ahead with an agreed deal to
restructure privately held debt until it guaranteed it would
implement reforms.

“There is a great sense of frustration that they are
dragging their feet,” one euro zone official said.

The troika wants agreement on all parts of the complex Greek
rescue deal, including any contribution by public creditors like
the ECB, before approving the bailout, a source close to the
talks said.

The rescue package, drawn up in October, also includes a
bond swap under which banks and insurers will take real losses
of about 70 percent on the Greek debt they hold in a bid to ease
Greece’s debt burden by 100 billion euros.

Representatives for the private creditors held talks with
Papademos on Sunday on the bond swap, which Venizelos has said
is now the easier part of the overall package to resolve.

The debt swap and bailout was designed to bring Greece’s
debt down to 120 percent of GDP by 2020, but EU sources say euro
zone governments may now have to cough up an extra 15 billion
euros on top of the agreed 130 billion for that to happen.

In a sign of how politically difficult any further aid to
Greece will be, a poll in German newspaper Bild am Sonntag
showed a majority of Germans feel the single currency bloc would
be better off if Greece left.

Within Greece, pressure is building to oppose further cuts
which many economists say will drive the country into a downward
spiral of recession and rising debt.

Greece’s two major labour unions plan a 24-hour strike on
Tuesday in protest at the demands made of it.

“Despite our sacrifices and despite admitting that the
policy mix is wrong, they still ask for more austerity,” Ilias
Iliopoulos, secretary general of public sector union ADEDY, told
Reuters.