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The leaders of the three parties in Greece's coalition government are expected to sign off on tough new austerity measures on Feb. 7, including a controversial reduction in the minimum wage, in exchange for about $171 billion in new bailout loans. If the leaders sign, then a separate bond-swap deal with private creditors to cut Greek debt by at least 50% will also come through.

But Greek politicians, already hated by the public for agreeing to earlier austerity measures, are actually faced with two disastrous choices: sign the deal and face the wrath of antiausterity voters in spring elections, or don't sign and send the country into a chaotic default, which could lead to an exit from the euro zone.

International lenders, including the E.U., the European Central Bank and the International Monetary Fund (IMF), are just as despondent. Euro-zone leaders say they've lost patience with the Greek delays, but they're also trying to process the likelihood that austerity may be backfiring on everyone. Austerity was supposed to bring down debt to sustainable levels in Greece, Portugal and Ireland, but instead debt has increased in all three countries. Greece's debt level is especially troubling: it rose to 159% of GDP, according to Eurostat, the E.U.'s statistical agency. That makes the IMF's goal of reducing Athens' debt to 120% of GDP by 2020 seem out of reach, analysts say. It is almost like Hercules and the hydra: lop off one problem, and more grow in its place.

"There is now broad agreement among euro-zone donors and the IMF that Greece will not be able to squeeze more revenue out of an economy that is in its fourth year of recession," wrote Katinka Barysch, deputy director of the London-based Centre for European Reform, in a recent assessment. Added Paul McNamara, investment director at GAM, an asset-management firm in London: "Greece is in a horrible position because it was already a terribly uncompetitive economy."

Meanwhile, beyond the statistics, ordinary Greeks are suffering badly. Even the IMF, an organization that's not known for its human warmth, acknowledged as much. "Much of the criticism from abroad overlooks the fact that Greece has done a lot, at a great cost to the population," the IMF's chief of mission, Poul Thomsen, recently told the Greek daily Kathimerini. He was speaking about the wage and pension cuts and tax hikes that have angered Greeks so much that some have protested violently outside Parliament.

Most Greeks don't protest and riot; instead, they have been waiting anxiously for the sacrifices to bear some fruit so the country can have some hope again. As the unemployment rate has doubled to nearly 19% and companies are increasingly becoming so broke that they can't pay their workers, many Greeks are frustrated with other Europeans' saying they're just not trying hard enough. "They say this even as we have become the homeless man of Europe," says Kostas Galitsakis, 36, a sports journalist in Athens who works at a private TV station that hasn't paid him, or any of its workers, for months. "It's the uncertainty that's wearing me down. It's impossible to plan for the future when you don't know if Greece will default or be forced to leave the euro behind and go back to the drachma. It's very hard not to fear the worst."

Panos Bessis, 42, a cameraman at the TV station, says he knows of colleagues who are now homeless because they've gotten kicked out of their apartments after falling behind on their rent. He says these colleagues sleep at the station, which the workers have occupied in a sit-in protest to force the owner to pay them. Bessis worries that he may find himself in the same situation: because the station hasn't paid him for so long, he's fallen behind on his mortgage. A recent poll found half of Greek homeowners saying they won't be able to pay their mortgages this year. "My wife hasn't been able to find a job for three years, and we also have a 5-year-old daughter," Bessis says. "Our savings have run out, and our options are running out too."

Bessis and other Greeks place the blame for Greece's woes squarely on the shoulders of their politicians. Many politicians, including former Prime Minister George Papandreou, can't walk in public without bodyguards. Others are pelted with yogurt, flour and eggs by angry constituents. At demonstrations, some protesters create makeshift gallows and scream that the politicians should be hanged. PASOK, the center-left party that ran Greece until November, has borne the brunt of the hatred because it introduced austerity measures after revealing that the previous ruling party, New Democracy, had lied about the deficit. A special prosecutor has even said Papandreou should be investigated for artificially inflating the deficit to allow austerity.

In this toxic atmosphere, elections could take place as early as April. Politicians are already campaigning, trying to distance themselves from austerity. Following the deadlocked meeting on Feb. 5 with interim Prime Minister Lucas Papademos, two of the three coalition leaders tried to position themselves as saviors of the people. Antonis Samaras, who leads the center-right New Democracy party and could be the country's next Prime Minister, said he was standing up to lenders to save the country from more recession. Giorgos Karatzaferis, who leads the hard-right LAOS party, said he was trying to stop the spread of a revolution.

Meanwhile, the quiet and wonky Papademos, a former central banker and Harvard professor with no political experience, is trying to navigate the fight club of Greek politics to carry out his mandate of saving the country from a messy default, which could lead to an exit from the euro zone. To do so, he must salvage both the bailout and the bond-swap deal to reduce the debt by at least 50%. Both deals must happen for Greece to have the money to pay off bonds that mature next month.

Even if Papademos persuades the coalition to sign off on the new bailout, he must then face Parliament, which also must approve the deal. In addition to slashing the minimum wage, the coalition government announced Feb. 6 that it would cut 15,000 civil service jobs this year.

Parliament will, of course, face the same tough choices as the coalition leaders. It too faces a public that resents austerity but overwhelmingly wants to stay in the euro zone. "It feels like we are damned either way," says Petros Koutsovoulos, 36, who runs a small shop in Plaka that sells handmade products fashioned out of the wood of olive trees. His business has dropped in half since the crisis. "If we give up and go back to the drachma, will it be a new start?" he says. "Or will it be the beginning of a poverty we can't even imagine?"

• Joanna Kakissis / Athens