The frenzied effort to bail out Greece and save it from a potentially devastating debt default has suffered another setback as a crucial meeting of eurozone finance chiefs was called off.

The meeting of the 17 euro countries to discuss Greece's second multi-billion bailout that had been planned for Wednesday was cancelled on Tuesday night after Athens failed to deliver on several demands made by its partners in the currency union.

The last-minute cancellation shows the eurozone wants much tougher guarantees from Athens before giving it an extra 130 billion euro (£109bn) in rescue loans, on top of 110 billion (£92 billion) granted in 2010, raising fears that the complex deal could still fall apart.

The meeting was expected to give the green light for a bond-swap deal with private creditors designed to slice some 100 billion euros (£83.6bn) off Greece's debt. The swap deal, which will take several weeks to implement, has to be finalised by March 20, when Greece faces a 14.5 billion-euro (£21.1 billion) bond redemption that it cannot pay.

Tensions between Athens and other European capitals have hit new highs this week. Although the European Union is officially still warning of the far-reaching dangers of a disorderly default by Greece, some politicians have in recent weeks downplayed the effects of such an event.

Athens and the eurozone have spent much of the past two years working to avoid a default, but the measures demanded in return for the second bailout cut to the bone of Greek society and the Greek state, making it difficult it to see how the country can restore growth.

"Greece has made all the efforts that it needed to do, and the people cannot take any more," Greece's public order minister Christos Papoutsis said after a cabinet meeting. "The government is making superhuman efforts and we have reached the limits of the social and economic system. From now on, Europe has to take the responsibility."

But politicians are struggling under the weight of having to make decisions that will affect generations to come.

"It has appeared that further technical work between Greece and the troika (Greece's international debt inspectors from the European Commission, European Central Bank and International Monetary Fund) is needed in a number of areas," Jean-Claude Juncker, the prime minister of Luxembourg who also chairs the meetings of eurozone finance ministers, said, calling off the meeting.

While parliament faced down violent protests over the weekend to approve a far-reaching new austerity package, the cabinet of ministers spent hours on Tuesday discussing how to save an extra 325 million euros (£272 million) demanded last week by the eurozone.