Greek official resigns over austerity plans

A high-ranking Greek official has resigned in protest over a proposed bailout deal for the country.

The Deputy Foreign Minister objects to some tough terms in the austerity deal and she has become the fourth cabinet member to resign over the EU demands.

It comes as thousands took to the streets of Athens as unions launched a two-day general strike against the planned measures.

The protests came a day after Greece’s crucial international bailout was put in limbo by its partners in the eurozone.

Clashes broke out in Syntagma Square, outside Parliament, as dozens of hooded youths threw fire bombs and stones at police, who responded with tear gas. No arrests or injuries were reported.

Police said some 7,000 people took part in the demonstration. Another 10,000 Communist supporters held a separate, peaceful march, chanting slogans against cutbacks that include reducing the minimum wage by 22% and cutting one in five government jobs.

Bailout creditors say Greece has not yet met demands for all the required austerity measures and, frustrated by days of dithering, have given political leaders in Athens until the middle of next week to do so. Otherwise, the country will lose its rescue loan lifeline, go bankrupt next month and likely leave the euro.

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

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 put up a roadblock later in the day by insisting 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.

A Cabinet meeting has been called, while the majority Socialists and the conservatives were later to hold party meetings to discuss the cutbacks.

The new hurdles Greece has to clear to avoid a 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 1.8 % lower in early afternoon trading.

While facing intense pressure abroad, Greece is having to deal with another strike. The country’s two biggest labour unions stopped railway, ferry and public transport schedules, and hospitals worked on skeleton staff while most public services were disrupted.

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 rejected 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.

France’s central bank chief Christian Noyer also urged Greece to accept the “reasonable and indispensable” austerity plan.

But on the streets of Greece, the mood is grim, after two years of severe income losses, repeated tax hikes and retirement age increases that failed to 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%.