Greeks protest as government prepares to discuss further cuts

Unions in Greece have launched a two-day general strike against planned austerity measures, a day after the country's crucial international bailout was put in limbo by its eurozone partners.

In Athens, riot police fired tear gas to disperse protesters throwing petrol bombs and stones.

No injuries or arrests were reported.

Police said the clashes came as some 7,000 people marched peacefully.

A separate protest by some 10,000 Communist demonstrators ended without incident.

Frustrated by days of dithering, bailout creditors have given Greece until the middle of next week to fully meet demands for harsh new cutbacks.

Otherwise, the debt-crippled country will lose its rescue loan lifeline, go bankrupt next month and probably leave the euro.

"We are experiencing tragic moments," Deputy Prime Minister Theodoros Pangalos told Parliament.

"These days are the last acts of a drama that we all hope will lead to a happy conclusion with a voluntary reduction in our public debt and implementation of a framework by 2015 that will allow the economy to stabilise."

The Greek coalition government, led by Prime Minister Lucas Papademos had hoped some of the heat had been taken out of the crisis after leaders agreed to a raft of austerity measures they hoped would pave the way for the €130bn bailout package.

However, finance ministers from the other 16 eurozone states last night insisted that Greece had to save an extra €325m, pass the cuts through parliament and guarantee in writing that they will be implemented even after planned elections in April.

The renewed hurdles in the way to the avoidance of a Greek default that could send shockwaves around the global economy dented sentiment in the markets. Stocks were down all over Europe, with the benchmark index in Athens 1.6% lower by midday local time.

While facing intense pressure abroad, Greece is having to deal with another strike - a Cabinet meeting has been called for later.

The country's two biggest unions stopped railway, ferry and public transport schedules. Hospitals worked on skeleton staff while most public services were disrupted. Unions were planning protests in Athens and other cities.

Prime Minister Papademos and heads of the three parties backing his government have already agreed to deep private sector wage cuts, civil service lay-offs, and significant reductions in health, social security and military spending.

But the party leaders resisted demands for more cuts to already depleted pensions, later issuing assurances that a solution had been found.

"Unfortunately, the eurogroup did not take a final, positive decision," Finance Minister Evangelos Venizelos said after Thursday's talks in Brussels. "Many countries expressed objections, based on the fact that we did not fully complete the list of additional measures required to meet our targets for 2012.

"The choice we face is one of sacrifice or even greater sacrifice - on a scale that cannot be compared," Venizelos added.

Once all the demands have been fulfilled, the eurozone will give Greece the green light to start implementing a separate bond swap deal with banks and other private investors designed to slice some €100bn off Greece's debt load.

EU Commission President Jose Manuel Barroso offered hope a deal could still be struck.

"I am confident that a solution will be reached next week as this is critically important for Greece and the Greek citizens first and foremost but also for the whole euro area," he said during a visit to India.

But on the streets of Greece, the mood is grim, after two years of severe income losses, repeated tax rises and retirement age increases that failed to signally improve the country's finances.

Unemployment is at a record high of 21% - with more than a million people out of work - while the economy is in its fifth year of recession and is expected to contract up to 5% in 2012.

The country's politicians have taken a lot of criticism for the situation, and polls show the majority Socialists, elected in a 2009 landslide are now languishing at around 8%.

A Greek Socialist MP resigned his seat today to protest at the new austerity, a day after the country's deputy labour ministry stepped down from his position for the same reason.

But the resignation of Pavlos Stasinos will not affect the party balance in Parliament, as he will be replaced by another Socialist deputy.