Greek parliament faced with crucial decision on more cuts

(ATHENS) - Greek MPs faced a showdown over the country's future Sunday as parliament prepared to vote to deepen austerity measures after the prime minister warned that the nation was approaching "Ground Zero".

"We are a breath away from Ground Zero," Lucas Papademos said in a televised address on the eve of the vote, urging deputies to grasp their "historic responsibility" to secure the country's financial future.

Papademos warned of "economic and social catastrophe" if parliament failed to agree the cuts required to obtain a second massive bail-out from the EU and IMF, to the tune of 130 billion euros ($171 billion), and avoid default.

The prime minister spoke late Saturday hours after thousands of protesters watched by riot police, demonstrated in Athens against the further belt tightening.

The country's unions held a 48-hour strike and have called a fresh demonstration on Sunday in front of parliament to protest what they say is the blackmail being imposed by the international troika of the EU, the IMF and the European Central Bank.

MPs will have to approve moves to recapitalise Greek banks, which may involve a degree of nationalisation if they cannot get sufficient private money.

And they must back a bond swap which, after long and tortuous negotiations, has finally been agreed with private creditors.

That is designed to wipe out around 100 billion euros from Greece's 350 billion euro debt, reducing the country's massive debt burden to 120 percent of GDP.

If deputies reject the package however, Greece will not get the money it needs to stave off bankruptcy on March 20, when it has to repay nearly 14.5 billion euros in maturing debt.

"We look into the eyes of the Greek people with full consciousness of our historic responsibility. The social cost of this programme is limited in comparison with the economic and social catastrophe that would follow if we do not adopt it," Papademos said in his televised address.

"The standard of living of Greeks would collapse in the case of a disorderly bankruptcy. The country would drift into the long spiral of recession, instability, unemployment and prolonged misery."

The state would be unable to pay salaries, pensions or even maintain basic services such as hospitals and schools, he warned.

"The programme contains measures that should have been adopted long ago," he said.

In a speech on Friday the premier warned that default would result in chaos.

"It would create conditions of uncontrolled economic chaos and social explosion... sooner or later, (Greece) would be led out of the euro," he warned.

Some MPs are certain to reject the package in the vote scheduled for 5:00 pm (1500 GMT).

The two remaining parties in the ruling coalition, PASOK the largest party and the conservative New Democracy are backing the measures and account for 230 out of a total of 300 deputies.

However, there are signs of growing unrest in the government ranks. Two PASOK junior ministers and four members of the far-right LAOS party have quit the cabinet in protest in the run-up to the vote.

The head of the International Finance Institute (IIF), Charles Dallaras, urged Greek lawmakers to pass the painful austerity measures demanded by creditors.

"I want to encourage them to vote. My voice is a very small part of this process, but it is very important for the MPs to understand what is at stake and to recognise that beyond austerity, which is part of the long-term dimension of this program, there are many tangible benefits for Greece and the Greek people," Dallaras said in an interview to Kathimerini newspaper on Sunday.

"Austerity, of course, will continue. But we are moving towards another situation where the benefits I mentioned will start being felt, such as capital inflow, which will gradually give an end to uncertainty," Dallaras, who is the chief representative in the private debt discussions added.

But the proposed austerity measures drawn up to make the cuts required by the European Union and the International Monetary Fund will heap more hardship on ordinary Greeks already suffering from the crisis.

They involve a 22-percent cut in the minimum wage (32 percent for anyone under 25); deregulating the labour market to make it easier to lay off workers; and a package of tax and pensions reforms that have provoked a wave of protest.