Greece’s default clock is ticking louder than ever as the country struggles to raise funds for a €5bn debt repayment by the end of this week. Meanwhile international lenders are failing to agree on how to reduce Athens’ debt.

On Friday the country must repay 5bln euro of maturing short-term bonds held by the European Central Bank, but without its next 31bln euro tranche it's not clear how this issue will be fixed. The government has already said it will run out of cash on Friday, if it doesn’t get the bailout money.

Initially Greece’s debt management office planed to raise the 5bln euro through a Treasury bill auction on Tuesday. But Greek banks expected to buy the issue can only provide as much as 3.5bln euro of collateral acceptable to the ECB, while Brussels refuses to give Greek banks permission to buy more debt. 

To avoid insolvency, the country would have to raise the remaining 1.5 billion from a 3bln euro reserve for bank recapitalization held by Greece’s Hellenic Financial Stability Fund. This institution has been established to maintain the stability of the Greek banking system

However, the possibility to get desperately needed aid becomes slimmer as the eurozone’s finance ministers, who are meeting in Brussels, are still divided on a number of issues.  While the IMF insists Greek debt levels need to be reduced to 120% of GDP by 2020, the European Commission is urging it to be cut to 125% by 2022. Officials also argue about a cut in interest rates on Greece’s bailout loans, with Germany, the Netherlands and Finland opposing the step.

On Sunday the Greek parliament adopted a budget for 2013 that involves 9.4bln euros of spending cuts, mainly in state wages, pensions and benefits, all of which have already been significantly reduced over the past two years. The budget was approved with 167 voting in favor and 128 against, with 5 abstentions.

“The sacrifices included in that law and in the budget we are voting today are the last,” The country’s PM Antonis Samaras announced as the deal was struck."

“We will start rectifying the injustices included in them once we get out of the deficits … But the reforms we passed will be permanent and will boost the economy.”

However, the measures the Greek government is taking are only making the country’s debt situation worse, according to John Laughland, director of studies at the Institute of Democracy and Cooperation. “The debt ratio in Greece is predicted to be 190 per cent of GDP by next year, that's much higher than when the first bailout plan was agreed,” Laughland told RT. 

“The [Greek] economy is in a free fall, it's been in a free fall for over a year. The fact is that the Greek political class like the rest of the European political class is in a sense a prisoner of European ideology, and this ideology exerts such a power over people that they are prepared to do things which by any rational measure are obviously counterproductive in order to preserve the European project, the euro in particular,” he continued. 

Laughland believes European governments “are determined to do everything to keep the single currency intact even to destroy their own country."

“Many other countries have found themselves in this position before – Russia, Argentina, and what they did was to devalue and default. And economic history shows that that works. The reason why it's not being adopted is because of this attachment to this European ideology,” Laughland added.

The budget predicted the Greek economy would contract 6.5% this year and 4.5% in 2013 and that the country's debt will reduce to 346 billion euro or 189% of the country's GDP.

With the crucial austerity measures approved Greece is trying to persuade international creditors to unlock the next bailout tranche. Even then, it would bring only temporary relief for troubled Greece as it still needs to borrow over 68 billion euro next year, according to the draft budget.

• A Permanent Economic Emergency