Greek Prime Minister George Papandreou faces a confidence vote on Tuesday, a hurdle he must clear to win backing for a new round of spending cuts, tax hikes and state asset sales needed to secure a 12 billion euro lifeline and avert the euro zone's first sovereign debt default.
If Papandreou's cabinet, reshuffled last week to quell dissent in his ruling party over the austerity measures, gets parliamentary support he will put the package up for a vote next week.
Protesters planned a big rally ahead of the confidence motion and workers at Greek state utility PPC launched a 48-hour strike at midnight on Sunday, underlining the level of social opposition to the belt tightening and adding to financial market uncertainty.
The euro clung on to modest gains in Asia in expectation that Greece would avoid an immediate default, although trade was nervous ahead of the confidence vote.
After two days of crisis talks in Brussels, euro zone finance ministers issued Athens an ultimatum, saying the government, parliament and broader society had until July 3 to approve new steps in order to get the next instalment of 110 billion euros ($154 billion) in European Union and International Monetary Fund aid agreed in May 2010.
"The approval of the Greek parliament is absolutely essential and it will have to arrive in a timely fashion so we can take a decision on July 3," Jean-Claude Juncker, who chairs the Eurogroup of the 17 euro zone finance ministers, said after the talks.
Even though Greece missed debt targets in the first package, euro zone ministers said they were ready to put together a second loan package.
The new plan of around 120 billion euros, due to be outlined by mid-July, will include for the first time, a contribution by private investors, who will be expected to make voluntary purchases of new Greek bonds as existing ones mature.
That, however, remains controversial and Fitch ratings agency said on Tuesday it would treat even a voluntary debt swap or rollover of maturities as a default.
Greek officials have admitted that the emergency loans are needed to prevent the country running out of money as soon as next month, effectively defaulting on its debt obligations. Papandreou called such a scenario "catastrophic" and appealed to the nation to accept near-term hardships.
"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 confidence debate on his new crisis cabinet.
His new finance minister, Evangelos Venizelos, said he would strive to get the reworked austerity programme approved, possibly by June 28.
The plan, now debated in parliament, aims to produce a further 6.5 billion euros in budget savings this year, and 28 billion through 2015, as well as 50 billion euros from the sale of state assets.
ATHENS ON WATCH
Years of profligate spending, lax budget discipline and tax evasion brought Greece's public debt mountain to 340 billion euros, or 150 percent of its annual economic output.
Last year's sharp upward revisions to its fiscal deficit numbers thrust the nation into the cross hairs of financial markets, prompting euro zone nations to cobble together a bailout package, fearing that Greece's collapse could take down other fiscally weak members of the currency bloc.
In the end, Ireland and Portugal had to be bailed out and in a sign that policymakers remained concerned about the repercussions of a possible Greek default, finance ministers from the Group of Seven of the world's top industrialised nations held two conference calls to discuss the situation.
One concern of lenders and investors alike, highlighted by street protests and dissent in Papandreou's own Socialist party, is that the Greek public at large is reluctant to accept belt-tightening as a necessary evil.
Power workers, opposed to government plans to sell the state utility company, began a strike and blackouts were expected in parts of the country. Protesters planned a big rally ahead of the confidence motion.
Keeping the pressure on Greece, inspectors from the EU and IMF plan a further visit to Athens this week -- having just completed an inspection, while Juncker has already scheduled an extraordinary meeting of euro zone finance ministers for July 3, when the release of the 12 billion euros will be approved if Greece keeps to its side of the deal.
The euro rose in Asian trade on Tuesday after euro zone finance ministers rubber stamped an agreement to increase the effective lending capacity of the current euro zone bailout fund to 440 billion euros by increasing guarantees.
"In the big scheme of things, market players are starting to believe that euro zone policymakers, especially German policymakers, will try to avoid a hard landing in Greece," said Makoto Noji, senior strategist at SMBC Nikko Securities.
Still, traders are cautious and so keep their positions on a short leash.
"It's all driven by short-term players. No one is buying the euro to hold if for a long time," said Tsutomu Soma, manager of foreign bonds at Okasan Securities.