By Philip Blenkinsop and Robert-Jan Bartunek
BRUSSELS (Reuters) - Sceptical European finance ministers gathered on Saturday to decide whether to negotiate a third bailout for Greece after Prime Minister Alexis Tsipras won lawmakers' backing for painful austerity measures his leftist party was elected to prevent.
With Athens staring at a bankruptcy that could see it crash out of the euro zone after financial markets reopen on Monday, EU officials forecast agreement would be reached by the end of the weekend to keep Greece afloat, but not before ministers and government leaders had vented their wrath at Tsipras.
Wolfgang Schaeuble, finance minister of its biggest creditor Germany and a veteran stickler for the EU's fiscal rules, said negotiations would be "exceptionally difficult".
Since Tsipras's leftist government won power in January, he said, emerging optimism about Greece had been "destroyed in an incredible way in the last few months".
Other ministers arriving for the Eurogroup meeting also spoke of a fundamental lack of trust after years of broken Greek promises and a snap referendum Tsipras called, in which voters massively rejected creditors' terms he has since had to embrace.
However, sources familiar with a preparatory meeting earlier on Saturday said ministers' aides had endorsed with reservations a recommendation by EU institutions and the IMF that Tsipras's proposals did provide a basis to launch negotiations.
"We are still far away," said Jeroen Dijsselbloem, the Dutch finance minister who was chairing the meeting. "On both content and the more complicated question of trust, even if it's all good on paper the question is whether it will get off the ground and will it happen ... We are facing a difficult negotiation."
LEFTIST DEFECTIONS
In Athens overnight, Tsipras had to rely on opposition votes from the right in parliament after some of his leftist lawmakers resisted spending cuts, tax rises and other measures he proposed in order to unlock 54 billion euros in three-year credit.
But Germany, the biggest lender in two previous bailouts totalling 240 billion euros ($265 billion) since 2010, is deeply sceptical after five months of abortive talks with Tsipras.
"The high figures for financing needs over the next three years may be too high and too sudden," one euro zone source said. He said officials believed Greece may need 82 billion euros, factoring in cash from the IMF and other EU sources.
Slovak Finance Minister Peter Kazimir, one of the most hawkish critics of Greece, said making the country's debt sustainable was going to be "a huge problem".
A positive assessment of the Greek proposals delivered by the European Commission, European Central Bank and International Monetary Fund late on Friday, along with bullish comments from Athens' key euro zone ally France, had raised expectations that the Eurogroup would give a green light to new loan negotiations.
But several ministers said on arrival that more spending cuts and reform measures were needed, with swift enactment by parliament to show that Greece was serious this time.
Even French Finance Minister Michel Sapin, Greece's most powerful ally in the euro zone, said: "Confidence has been ruined by every Greek government over many years which have sometimes made promises without making good on them at all.
"Now we need to have confidence again, to have certainty that decisions announced are decisions which are actually taken by the Greek government."
German Chancellor Angela Merkel has made clear she does not want to see a "Grexit" that could disrupt a fragile European economic recovery and undermine a supposedly irreversible union. However, she faces stiff opposition among her own conservatives.
Euro zone leaders, including Merkel and French President Francois Hollande, are due to meet on Sunday, either to endorse the ministers' verdict or, along with other EU leaders, to take steps to contain the fallout from a looming Greek bankruptcy.
PARLIAMENT DIVIDED
With Greece's banks shut and completely dependent on a credit lifeline from the European Central Bank, the measures were seen as a last chance to avert financial collapse.
But in an ominous sign for the stability of the Greek government, 10 members on the ruling benches abstained or voted against the measures and another seven were absent, leaving Tsipras short of the 151 seats needed for a majority of his own.
Prominent left-wingers in his Syriza party signalled before the vote that they could not support the mix of tax hikes and spending cuts proposed by Tsipras, following the rejection of similar austerity measures by voters in Sunday's referendum.
Energy Minister Panagiotis Lafazanis, Deputy Labour Minister Dimitris Stratoulis as well as the speaker of parliament, Zoe Constantopoulou, all called "Present", in effect abstaining from the vote and withholding their support from the government.
"The government is being totally blackmailed," Constantopoulou said.
Following the vote, where many leftists in his own party were stunned by his acceptance of previously spurned austerity measures, Tsipras said he would now focus on securing a deal.
"The parliament today gave the government a strong mandate to complete the negotiations and reach an economically viable and socially fair agreement with its partners," he said.
"The priority now is to have a positive outcome to the negotiations. Everything else in its own time."
"HEAVY HEART"
After the jubilation in Athens last Sunday following the resounding rejection of further austerity in a referendum, there was bitterness that parliament was being asked to accept a strikingly similar package of measures.
The leader of the right wing Independent Greeks party, the junior coalition party in Tsipras' government, said his lawmakers would back the proposals "with a heavy heart".
U.S. Treasury Secretary Jack Lew said on Friday that Greece and its creditors appeared to be closer to a deal, calling for an adjustment to Athens' debt burden to ease its cash flow.
Greece asked for 53.5 billion euros ($59 billion) to help cover its debts until 2018, a review of primary budget surplus targets in the light of the sharp deterioration of its economy, and a "reprofiling" of the country's long-term debt.
A senior EU official said the Eurogroup talks would include discussions on whether Greece needs some debt relief.
In addition to cash from the euro zone, if Greece makes payments it missed last month to the IMF, the global lender still has a facility to lend Greece some 16 billion euros.
Any deal would also have to be endorsed by national parliaments including in Germany, which must also formally approve the loan negotiations being started.
The latest offer includes defence spending cuts, a timetable for privatising state assets such as Piraeus port and regional airports, hikes in value added tax for hotels and restaurants and slashing a top-up payment for poorer pensioners.
Greek banks have been closed since June 29, when capital controls were imposed and cash withdrawals rationed after the collapse of previous bailout talks. Greece defaulted on an IMF loan repayment and now faces a critical July 20 bond redemption to the ECB, which it cannot make without aid.
(Additional reporting by Angeliki Koutantou, Michele Kambas, George Georgiopoulos, Costas Pitas, Lefteris Karagiannopoulos, Georgia Kalovyrna, Matthias Williams and James Mackenzie in Athens, Andreas Rinke, Marine Hass, Tom Koerkemeier, Renee Maltezou, Francesco Guarascio, Foo Yun Chee, Alastair Macdonald, Julien Ponthus and Miranda Alexander-Walker in Brussels and Jan Strupczewski; Writing by Alastair Macdonald; Editing by Paul Taylor)
