Austerity talks as Greece fights to avoid running out of cash

It must be passed by Parliament next week if the country is to get its hands on crucial bailout funds.

Greece’s creditors are demanding that lawmakers back fresh budget cuts and taxes in the austerity bill and an additional implementation law before Thursday. Only then will they approve the release of more loans, worth 12bn euro (£10.7bn), from Greece’s 110 bn euro (£98bn) bailout loans.

Without that, Greece will face the real prospect of running out of money by the middle of July. The country has already missed some targets and a default could drag down Greek and European banks, endanger the finances of other weak eurozone nations such as Portugal, Ireland and Spain, and spark financial uncertainty across world markets.

European officials are also discussing additional help for Greece in the form of a new bailout.

German Chancellor Angela Merkel has warned that a default would have “completely uncontrollable” consequences on the financial markets but insisted that private creditors should voluntarily share the pain of a second Greek bailout.

Evangelos Venizelos, who was appointed Finance Minister last week in a cabinet reshuffle following days of political turmoil, was meeting the heads of delegations from the European Commission, International Monetary Fund and European Central Bank – known as the troika– to discuss the final details to the two bills.

The talks in Athens came as Prime Minister George Papandreou, who survived a confidence vote in his government on Tuesday, was heading to Brussels for a summit of European Union leaders.

Mr Papandreou still needs to convince several of his own Socialist lawmakers to support the austerity bill and the privatisation drive.

All 155 in Mr Papandreou’s Socialist party voted on Tuesday to back their leader in the 300-seat parliament, eliminating the chance of early elections.

European leaders breathed a sigh of relief but have kept up the pressure on Papandreou, who faces a vote on June 28 to push though the additional spending cuts, tax rises and asset sales.

The plans have led to widespread protests and strikes. Riot police stood guard outside the parliament building on Tuesday while the confidence vote took place, several thousand protesters chanted “Thieves! thieves!”

Greeks faced more power cuts yesterday as workers at the electricity company continued 48-hour rolling strikes, objecting to the privatisation of the power company.

Mr Venizelos was seeking to dilute some aspects of the austerity programme Greece has already agreed so as to be able to offer a marginally more attractive package to parliament on June 28 and appease an angry Greek public.

But the changes would mean the country failing to meet its austerity expectations. Officials said yesterday he was seeking to revise plans to lower the income tax threshold and raise a tax on heating oil – measures that could go some way to garner much-needed public support but which economists were warning would leave a significant gap in funding.

Continuing their fight against the toughened austerity measures, Greek unions yesterday declared a 48-hour general strike next week, the fourth to be held this year, to coincide with the vote by the Greek parliament.

The strike will take place on Tuesday and Wednesday, the General Confederation of Workers of Greece said. Tens of thousands are expected at a rally outside the parliament building.