By Jan Strupczewski & George Georgiopoulos

Greece revealed on Wednesday that it will overshoot its deficit and debt targets again next year because of a deeper than forecast recession as eurozone finance ministers debated how to keep the near-bankrupt state afloat.

Athens needs to push through spending cuts and tax measures worth 13.5 billion euros ($17.5 billion) as well as a raft of economic reforms to satisfy EU and IMF lenders and secure more bailout money next month to avoid bankruptcy.

Parliament in Athens took a step forward by narrowly passing a required privatization measure, but the precariousness of the government's majority fueled doubts about the passage of other more contentious reforms next week.

After a two-hour conference call of ministers from the 17-nation Eurogroup, German Finance Minister Wolfgang Schaeuble told a news conference: “There was considerable progress.”

However, another person on the call said there was no real progress because the International Monetary Fund remained at loggerheads with Germany, the EU's biggest creditor nation, on the need for European government lenders to participate in reducing Greece's debt burden.

“There is a harsh debate between the IMF and Germany about OSI (official sector involvement),” said the participant, who spoke on condition anonymity.

The IMF also opposed pressure from Berlin to make Greece put aid tranches and earmarked tax revenue into an escrow account to service its debts, and for automatic measures to kick in if its adjustment program veered off course again, the source said.

Eurogroup chairman Jean-Claude Juncker said in a statement he expected a deal at the finance ministers' face-to-face meeting on Nov. 12 provided Greek authorities had completed a list of prior actions.

Schaeuble said ministers expected to receive a crucial report from the so-called “troika” of international lenders on Nov. 11 or 12, near the deadline, but insisted: “Time pressure cannot lead to irresponsible solutions.”

The German minister also said there were no concrete negotiations yet with Cyprus, which has said it may struggle to pay public sector salaries in December without aid, and they would probably not start until 2013.

The ministers received more bad news earlier when Athens slashed its forecast for a budget surplus before debt servicing costs next year, dimming one of its few bright spots as rounds of austerity deepen a recession already into its fifth year.

The government forecast a 4.5 percent economic contraction in 2013, which will push public debt to a record 189.1 percent of gross domestic product. The primary budget surplus is forecast to be just 0.4 percent, well down on the 1.1 percent pencilled in previously.

Thomas Wieser, the coordinator of euro zone finance ministers, said Greece's lenders were not discussing at present another debt write-off, or “haircut”. EU diplomats said other ways of stretching out official loans were on the table.

The options included lengthening the maturities and reducing the interest rate on existing loans, an interest payment holiday, letting Greece buy back its own debt at a discount with borrowed money and allowing it to issue more short-term T-bills.

Even though IMF and EU officials say privately Greece's debt is unsustainable and will have to be restructured, Schaeuble said that for a large majority of euro zone countries accepting a “haircut” was legally impossible.

The troika is readying a debt sustainability analysis and pondering ways to plug a financing gap if Greece were to reach a primary surplus, which excludes interest payments, of 4.5 percent of GDP in 2016 rather than in 2014.

The source said the ministers were told the troika reckoned that Greece would need an extra 30 billion euros ($39 billion) in funding over the two extra years.

Wieser said it would be “very, very tough” for Greece to reach the original target, given the depth of its recession, a view underscored by Wednesday's revised forecast.

The latest budget figures nonetheless confirm the country is on track to achieve a primary surplus for the first time since 2002, after a 1.5 percent deficit in 2012.

A deal on restarting the second bailout for Greece, stopped in June because the country was off track with reforms, hinges on the ruling coalition adopting strict labour market reforms.

An overwhelming majority of Socialist lawmakers agreed on Tuesday to vote in favor of the contested reforms, party officials told Reuters, sharply increasing the likelihood of the government winning a parliamentary vote which has become its biggest test since taking power in June.

After months of negotiations on the austerity plan, Prime Minister Antonis Samaras announced that talks had been completed and implored his allies to back the package, which includes scrapping automatic wage rises and cutting severance payments.

The prime minister's New Democracy party and the Socialist PASOK have between them 160 deputies, nine more than they need for an absolute majority in parliament.

But the third party in the coalition, Democratic Left, refuses to back the proposed new labour laws, making next week's vote unpredictable. The privatization measure passed by just 149 votes to 139 on Wednesday.

“What would happen if the deal isn't passed and the country is led to chaos?” Samaras said in a statement. “Such dangers must be avoided. That is the responsibility of each party and every lawmaker individually.”

The government included a large chunk of the austerity measures in the 2013 budget bill presented on Wednesday, with the remaining measures and labour reforms in a separate bill to be put to parliament on Monday.

Raising the pressure, Greece's two biggest labour unions called a 48-hour strike for Nov. 6-7 to protest against the latest wave of austerity measures.

Highlighting persistent trouble in meeting its targets, the country's privatization agency said on Tuesday it had slashed its revenue target to about 11 billion euros by the end of 2016, down from a previous target of about 19 billion euros by the end of 2015.

The lack of progress stems from the reluctance of Greek governments to sell off assets, political instability and the lack of investor interest in a country facing a grim economic future and the threat of an exit from the euro.

Despite public anger at the unpopular austerity measures, the budget is expected to pass in parliament since all three parties in the ruling coalition have agreed to back it. [Reuters]