Greek deputies set to back key austerity bill (AP)

By DEMETRIS NELLAS and CHRISTOPHER TORCHIA, Associated Press Demetris Nellas And Christopher Torchia, Associated Press – 23 mins ago

ATHENS, Greece – Greek deputies are poised to back a deeply unpopular austerity bill Wednesday that is essential for the country to get crucial bailout funds and avoid a devastating default on its debts.

The bill, which aims to slash euro28 billion ($40 billion)from the Greek budget, must be passed by Parliament if international creditors are to release the next euro12 billion ($17 billion) installment of the country's euro110 billion ($157 billion) bailout fund — and prevent a default that could have huge repercussions in Europe's banking sector and stoke renewed turmoil in global markets.

An additional bill that details how the austerity measures will be implemented must also be passed in a vote Thursday.

The proposals by the Greek government have sparked violent protests in Athens as well as a rebellion inside the governing Socialist Party. Prime Minister George Papandreou has struggled to convince his party's deputies to back the bill. He replaced his finance minister earlier this month to assuage the concerns of some lawmakers.

The Socialists hold a five-seat majority in the 300-member legislature.

Hours ahead of the vote, it looks like only one Socialist deputy will fail to heed Papandreou's call to back the measures, suggesting that the bill will get at least the 151 votes needed for it to pass. Hopes that the bill will pass have seen European stock markets start the day off strongly and the euro jump towards $1.44.

Alexandros Athanassiadis, many of whose constituents are employed by the Public Power Corporation which is up for privatization, said he maintains his opposition to the bill.

"I have not changed my opinion ... as things stand, I persist in my decision," he told The Associated Press. "I don't think (any other socialist) deputies will vote against. I will be the only one."

Athanassiadis said he opposes privatization of electricity and water companies, but supports the selling of several other state enterprises.

Wednesday's vote comes against a backdrop of violent demonstrations and on the second day of a nationwide general strike which has brought much of the Greek economy to a standstill.

Protesters have vowed to encircle Parliament to prevent deputies from entering and voting for the bill. A massive security operation was under way to avert the blockade, with a large section of central Athens sealed off to traffic.

Scuffles broke out early in the morning as demonstrators attempted to block a major avenue leading to the center of the city, and to Parliament. Riot police responded with pepper spray, and 10 people were treated in a nearby hospital for minor injuries, hospital officials said.

A day earlier, extensive clashes left at least 46 people injured, most of them police, as rioters pelted police with chunks of marble and ripped up paving stones, and authorities responded with repeated volleys of tear gas and stun grenades.

Greece has said it has funds only until mid-July, after which it will be unable to pay salaries and pensions, or service its debts, without the next bailout installment from the eurozone and the International Monetary Fund. The country is also in talks for additional help in the form of a second bailout, which the prime minister has said will be roughly the size of the first.

"Voting these measures is required to maintain our credibility in the (bailout) process," new Finance Minister Evangelos Venizelos said during the debate Tuesday night. "Voting for these measures, regardless of any reservations, is an important, brave act of political responsibility."

But even prominent Socialists who say they will vote in favor are voicing objections.

"The austerity measures are not only harsh, not only unfair, but they are also ineffective," Socialist critic Vasso Papandreou, who is not related to the prime minister, told parliament late Tuesday. Still, she said she would grudgingly vote for the bill.

"Greece has many problems but the real problem is the eurozone," said Papandreou, a former EU commissioner. "Europe should be a zone of solidarity, but it is a jungle where the banks can do what they like."

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Menelaos Hadjicostis, Elena Becatoros and Thanassis Stavrakis contributed.

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Greek PM reshuffle plan in doubt as deputies quit (Reuters)

ATHENS (Reuters) – A string of parliamentary resignations on Thursday threatened to thwart Greek Prime Minister George Papandreou's plan to reshuffle his cabinet and pass new austerity measures needed to save Greece from default.

The political turmoil raised uncertainty over the Socialist cabinet's five-year plan for tax hikes, spending cuts and state property selloffs demanded by its bailout lenders, spooking investors who fear the problems could infect global markets.

The reshuffle reflects the unpopularity of the austerity measures and follows the failure of talks over a unity government on Wednesday that drew disappointment from European Union officials who have appealed for Greece's political elite to unite behind the belt-tightening.

Analysts said it was increasingly unclear whether Papandreou would be able to form a new governing team and get the measures approved amid the political chaos, which follows nationwide strikes and violent protests in Athens on Wednesday.

"It will be very hard now to find good people to form a government now. They don't trust (Papandreou) after all the flip-flops he has made," said former finance minister Stefanos Manos. "Who will make privatizations now in all this turmoil?"

Two lawmakers in the ruling party stepped down on Thursday and will be replaced by other party members.

A ruling party deputy said that there was a lack of leadership in the country and that lawmakers were gathering signatures to force a caucus meeting of the parliamentary group later in the day.

"This does nothing to reduce fears that some form of default will eventually take place," Ben May of Capital Economics said after the resignations.

BUYING TIME

World stocks hit a three-month low on Thursday, the euro slumped to a one-month trough and top-rated government bonds rose as concerns intensified over the crisis.

Euro zone sources said the International Monetary Fund was expected to pay its share of Greece's latest aid tranche quickly to buy the EU more time to finalize a package to keep Greece afloat through 2012 and beyond.

But in a reflection of growing international frustration at the lack of political will for reform in Greece, the European Commission warned that Athens must implement its program of austerity measures to keep receiving aid.

"The government and the political forces in Greece have to take the decisions, assume their responsibilities in order to support this program," commission spokesman Amadeu Altafaj told a regular news briefing.

A senior IMF official said the Fund was very concerned by the political turmoil but stood ready to help if Athens approves its austerity plan.

If the reshuffle goes ahead, the new governing team will face a confidence vote late on Tuesday, a parliamentary aide told Reuters.

Papandreou may seek to replace his finance minister, George Papaconstantinou, the main architect of hugely unpopular budget cuts demanded by the EU and the IMF as part of Greece's 110 billion-euro bailout last year.

Former ECB Vice-President Lucas Papademos is most frequently mentioned as a candidate to replace Papaconstantinou, who Greek media have said may be on his way to the Foreign Ministry.

Papademos's office said he was out of the country on Thursday and not available for comment.

AUSTERITY

Tax rises and spending cuts worth 6.5 billion euros ($9.4 billion) are planned this year, doubling already agreed measures that have driven unemployment up to a record 16.2 percent and extended a deep recession into its third year.

The European Union and International Monetary Fund have demanded the new 5-year austerity plan as a condition of releasing the next tranche of 12 billion euros in aid, which Athens needs to pay back debt that matures in August.

"I can't believe they are doing this (political wrangling), with all the money they are being offered," a European central banker told Reuters on condition of anonymity.

The plan includes new luxury taxes, a crackdown on tax evasion and tax rises on soft drinks, swimming pools, restaurant bills and real estate. The euro zone member's 750,000-strong state workforce would be cut by a fifth. It also aims to raise 50 billion euros by selling off state-owned firms.

On Wednesday, tens of thousands of angry Greeks massed outside parliament to demonstrate their hostility to the draconian economic measures, while rioters hurled petrol bombs at the Finance Ministry and police fired volleys of teargas to break up the crowds.

Some Greek media a failed attempt by Papandreou to create a unity government on Wednesday had sown confusion.

"Papandreou behaved with eccentricity and created a chaos without precedent," the daily Kathimerini said in an editorial.

The political machinations and international haggling over the terms of a second bailout have battered bond markets, and the cost of insuring Greek debt against default soared to yet another record high on Thursday.

Greek opposition leader Antonis Samaras said the only way out of the crisis was early elections, but analysts said that would only happen if the government failed to get a vote of confidence.

"I think that Greek politicians are mature enough and will vote for the mid-term plan," said Gikas Hardouvelis, chief economist at EFG Eurobank. "What they don't have is the maturity to implement the hard austerity measures that it includes."

(Additional reporting by Tatiana Fragou, Renee Maltezou and George Georgiopoulos; Writing by Michael Winfrey and Hugh Lawson; Editing by Peter Graff)

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