ATHENS—As Greece lurches toward climb-down or collision with its creditors, an exhausted population is bracing for more economic pain—either way.
Panagiotis Koupalidis, a 68-year-old retiree, is supporting his wife as well as their three grown children, who lost their jobs in Greece's depression, on a pension of €700 ($ 790) a month. That is just over half what it was before the austerity measures imposed by creditors as the condition for bailout loans.
Now Mr. Koupalidis reads reports that eurozone authorities and the International Monetary Fund want pensions cut further, and wonders how his family and a great many other households in their position will cope.
"The creditors are acting like grave diggers," he says. "They want to send us pensioners to an early grave."
Pension cuts and sales-tax increases—which would inflict the most pain on low-income families already living hand to mouth—are the most politically explosive demands from Greece's creditors, who see them as essential to restoring Greece's long-term financial stability.
The demands have led to brinkmanship between Prime Minister Alexis Tsipras and Greece's lenders, led by German Chancellor Angela Merkel . Their confrontation could boil over at a summit of European leaders next week—if not sooner.
Mr. Tsipras told lawmakers from his left-wing Syriza party that Greece can't accept the terms on offer, but tried to sound optimistic. "I believe that we are now in the final stretch. The real negotiations are starting now," he said on Tuesday.
Failure to reach a deal could lead to even-more pain through capital controls, further economic meltdown and a turbulent exit from the euro.
Ms. Merkel, during a visit to Luxembourg, reiterated that Greece must agree to broad economic overhauls. "I have repeatedly said that I want to do everything possible to keep Greece in the eurozone. I am devoting myself to this task in these days," she says.
Syriza and Mr. Tsipras have come a long way from the antiausterity rhetoric that swept them into office early this year, offering a range of spending cuts and tax increases to bolster the budget.
But the International Monetary Fund says more austerity is needed because Germany and other European governments are unwilling to forgive Greek debts. Many European officials believe Mr. Tsipras is refusing to comply with the bailout terms in an attempt to force Ms. Merkel to blink. The Greek government denies that.
Few Greek voters or politicians still support the conditions set in exchange for the €245 billion ($ 275 billion) rescue, which has kept Greece afloat for the past five years but is widely seen here as having pushed the country from a financial crisis into a full-blown depression.
The heavy loss of private-sector jobs and the pressure on the social fabric—including rises in poverty, homelessness, mental illness and suicides—have eroded initially broad hopes that the bailout would provide a chance to correct long-standing economic and political failings.
Since 2010 Greece has put in place spending cuts and tax-revenue increases totaling around 30% of gross domestic product, according to European Union figures. That scale far exceeds Europe's other crisis-hit countries and has been a major factor in Greece's loss of a quarter of its economic output.
With unemployment at 26% and many jobless people no longer eligible for benefits or health insurance, the upstart, antiestablishment Syriza party has become the country's strongest political force while traditional parties have crumbled. Syriza, more used to organizing street protests, has struggled to adapt to government and Syriza officials admit their inexperience has made their balancing act harder.
The prospect of sharp hikes in value-added tax, a form of sales tax, are threatening to hurt Greece's battered business sector further. Lenders want to simplify Greece's exemption-ridden VAT system and raise some rates to boost revenues by 1% of GDP a year.
The IMF is insisting on the measure through even though it thinks Greece's economy is already overtaxed, because it sees extra revenues as essential for paying down Greek debt if Europe—which holds the bulk of it—won't write it down.
"How can a deal that raises VAT even more be a good deal?" said Christos Lousis, a 53-year-old entrepreneur whose window-installation business had 26 employees before the crisis.
Years of recession have forced him to lay them all off, while his sales have fallen by nearly 90%. Now struggling to service his mortgage and the loans on his shrunken business, the father of two also fears that Greece will strip away homeowners' protection from repossession by banks—which Greece's creditors have pushed for to protect the banking system.
"They are going to turn us into murderers," Mr. Lousis says. "If they come to seize my house I'm ready to take the head of whoever is standing there—and I'm not the only one thinking this way."
He is in the minority, however, in thinking that leaving the euro might be a good idea.
Nearly 70% of Greeks want to stay in the euro even if it means more austerity, according to a survey by pollster GPO published on Monday.
Greece's lenders are demanding €3 billion of fiscal measures in 2015 alone. Syriza, which remains Greece's most popular party, is determined to extract more concessions. It has proposed measures worth more than €2.5 billion over the next two years.
That "is probably near the maximum that could be squeezed out voluntarily from a country where the political system is shattered, the economy is gasping for air and society is at a loss," according to MacroPolis, a nonpartisan Website of Greek economic and political analysis.
Retired taxi driver Nikos Athanasiou, 62, says his disposable income has halved during the crisis thanks to pension cuts and extra taxes. But his children's generation is the greater victim, he says.
One son earns only €400 a month. His other son is jobless and "feels ashamed when he has to ask for €3 to have a coffee," Mr. Athanasiou says. "My son is still a man with energy, liveliness, but there are moments when he looks so depressed."
Like many young Greeks, Alexandros Papaioannou wants to leave the country as soon as he has scratched together enough savings. The 31-year-old is working as a bartender, but the money doesn't stretch far beyond rent and utilities. "I don't want to have choose between going to the supermarket or paying my bills," he says. "This thing is freaking me out."
Write to Nektaria Stamouli at nektaria.stamouli@wsj.com and Marcus Walker at marcus.walker@wsj.com
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