EU puts heat on Greeks over austerity plan

Demonstrators gesture towards the Greek parliament during a peaceful rally in central Athens' Syntagma square. Photo / AP

Tens of thousands of Greeks descended on central Athens to lay peaceful siege to Parliament ahead of a confidence vote due to take place tomorrow.

Yesterday, Greek Prime Minister George Papandreou confirmed that the country was seeking a second international bailout to avoid a potentially disastrous default.

"The consequences of a violent bankruptcy or exit from the euro would be immediately catastrophic for households, the banks and the country's credibility," Papandreou said at the start of a three-day confidence debate on his new crisis Cabinet.

He said Greece wanted the new bailout to be similar in size to the first one.

In what is becoming a weekly ritual, Syntagma Square in Athens was transformed into a giant village fete with a broad cross-section of the population united only by their hatred of the MPs.

"Greeks are always divided but now for the first time everyone is here together," said Achilleas Peklaris, the head of a volunteer group calling itself the "Calm-downers". "All Greece is here and that is something new."

The occupation of Syntagma Square, which enters its 26th day today, has yet to produce a clear set of demands, but it also shows no signs of packing up. Protesters chanted adapted football slogans at MPs debating nearby, calling them "thieves" and demanding an end to austerity measures.

The Government faces a confidence vote in Parliament tomorrow having failed last week to pass a package of austerity measures or win the support of the opposition for a unity government.

Yesterday, hours of talks between eurozone finance ministers broke up without the ministers approving a vital instalment of rescue loans needed to avoid bankruptcy next month.

Greece will get the next €12 billion of its existing €110 billion bailout package in early July, but only if it manages to pass €28 billion in new spending cuts and economic reforms by the end of this month, according to Jean-Claude Juncker, the Prime Minister of Luxembourg who also chairs the regular meetings of the 17 eurozone finance ministers.

"We have to, of course, await this vote [by the Greek Parliament]," Juncker said.

He said that as long as Parliament supported the new measures, he was certain Greece would get a second bailout - on top of the existing one.

Under the terms of last year's agreement, Greece was meant to have made greater progress in public-sector cuts and a privatisation programme and its budget deficit is running far higher than the prescribed 7.5 per cent.

Evangelos Venizelos was promoted to Finance Minister in an emergency reshuffle last week as the price a weakened Papandreou had to pay for ensuring party loyalty in both the confidence vote and in a second attempt to pass austerity measures.

The political turmoil in Greece last week panicked financial markets and effectively forced Germany to drop its insistence that the private sector share some of the pain in a second bailout.

Public anger in Greece at spending cuts and tax increases has spilled over into regular riots. The Prime Minister tried to draw some of that anger yesterday by offering a referendum later this year on changes to the constitution aimed at making it easier to trim the country's bloated public sector.

He also railed against the media, market speculators and tax havens for destroying market confidence in Greece and driving up the cost of borrowing.

"I ask for a vote of confidence because we are at a critical juncture," Papandreou said. "The debt and deficits are national problems that have brought Greece into a state of dependence that may have protected us from bankruptcy, but which we need to get out of."

However, there is little confidence that a new bailout will achieve anything other than delaying an eventual default. This is because the EU-IMF prescription of austerity for loans has so far failed to have an impact on Greece's debt burden of 160 per cent of GDP and the economy is still shrinking.

There is widespread agreement among economists that some restructuring of the national debt will be necessary despite the continued opposition of the European Central Bank.

- INDEPENDENT, AP