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Greece Urged to Step Back From Brink


A teacher carries a banner reading: 'Education for sale' during a protest front of the Greek Parliament in Athens on May 4. (AFP/Dimitar Dilkoff)

Greek president Carolos Papoulias today urged his country to step back from "the brink of an abyss" following the deaths of three bank workers yesterday during protests against the government's new harsh austerity measures.

Yesterday's deaths - the first such fatalities in protests in nearly 20 years in Greece - shocked the public in a country where violence during demonstrations is frequent but rarely results in casualties.

"I have difficulty in finding the words to express my distress and outrage," President Karolos Papoulias said. "Our country came to the brink of the abyss. It is our collective responsibility to ensure that we don't step over the edge."

The deaths came as an estimated 100,000 people marched through Athens during a nationwide strike against additional austerity measures imposed to unlock a €110 billion rescue loan package for debt-ridden Greece from the International Monetary Fund and the other 15 countries which use the euro.

Politicians were debating the measures in the Greek parliament today and were to vote on passing the draft bill tonight.

Prime minister George Papandreou's socialists hold a comfortable majority of 160 deputies in the 300-seat Parliament, and the bill is expected to pass easily.

Greece urgently needs the first instalment of the rescue package if it is to avoid defaulting on May 19th, when it has €8.5 billion in bonds maturing. The measures slash salaries and pensions and hike taxes, outraging many Greeks.

Yesterday's demonstration - the first since the new measures were announced on Sunday - quickly turned violent, with hundreds of protesters breaking away from the march and trying to storm Parliament, shouting "Thieves, traitors."

Greece has seen its borrowing costs on the international market soar to unsustainably high levels, reaching interest rates of above 10 per cent - four times those of Germany's. Without the eurozone and IMF rescue package - under which Athens will receive loans at interest rates of about 5 per cent - the country will be unable to refinance its debt.

However, there are fears that the bailout will not stop the debt crisis from spreading to other financially troubled EU countries like Portugal and Spain.

Yesterday, credit ratings agency Moody's put Portugal on watch for a possible downgrade.

The euro and world stocks remained jittery today after three straight days of losses as investors fled risk amid growing signs that Athens' woes are spreading to other weak euro economies, testing whether European governments are willing to extend a bailout devised for Greece alone.

The cost of insuring Portuguese and Spanish debt as well as Greek debt against default leapt to new peaks before a closely watched auction of 5-year Spanish bonds. Yields jumped for the auction but there was no shortage of demand.

European policymakers' attempts to talk down the risk of contagion and scare off "speculators" had little impact on traders unimpressed by the EU's slow and disjointed response to the unfolding crisis.

"There's no let-up in concerns that the euro zone debt crisis could continue to worsen and as a result equity markets across the globe remain under pressure," said Ben Potter, analyst at IG Markets.

All eyes were on ECB President Jean-Claude Trichet to signal what the world's second most powerful central bank can do to pull the euro zone out of a vicious cycle of soaring borrowing costs, dwindling growth prospects and sovereign debt downgrades.

Mr Trichet will face questions on whether the ECB may reverse its policy and buy euro zone government bonds or try other measures to keep credit markets open to Portugal and Spain at affordable rates while Greece receives EU/IMF emergency loans.

European Council President Herman van Rompuy, who will chair a special euro zone summit on the crisis tomorrow evening, was the latest top EU official to try to erect a verbal firewall, saying the situation of Portugal or Spain had nothing to do with Greece's problems.

"What I now see are totally irrational movements on the markets set off by unsubstantiated rumours, for instance yesterday with Spain, but also as regards Portugal," he said.

The Greek government vowed not to retreat a single step from unpopular wage and pensions cuts and tax rises despite the recent violence.

"We will press ahead, even if we have to walk alone, without the backing of other parties," finance minister George Papaconstantinou told parliament.

Greek newspapers condemned the violence that caused the deaths of three bank employees, including a pregnant woman. Many said it was now up to Greece's leaders to set the country on a course the people could follow.

"Whether we self-destruct, whether we go bankrupt, depends now on our leaders, but also on all of us," said centre-right daily Kathimerini .

Police said in a statement that 41 people had been injured in clashes which were instigated by hundreds of black-hooded anarchists, but also drew in ordinary protesters.

The country's main public sector union ADEDY and private sector union GSEE planned to demonstrate outside parliament ahead of the expected vote late on Thursday on the bill. It is designed to save an extra €30 billion to reduce a bloated deficit that stood at 13.6 percent of economic output in 2009.

The euro sank to its lowest level in 14 months, below $1.28. It has fallen 10 percent since the start of the year as Greece's fiscal troubles escalated.

Concern that Greece will be unable to make all of the deep budget cuts agreed on Sunday with the EU and IMF because of social unrest is one of the drivers of the euro zone turmoil.

European Commission president Jose Manuel Barroso, speaking by video link to a conference in Berlin as the German parliament deliberated on the Greek rescue, said he was sure all 16 euro zone countries would approve the loan package.

He warned there would be a negative impact on the whole euro area unless there was a unanimous decision in support of aid. German Vice-Chancellor Guido Westerwelle, whose pro-business FDP party has been critical of helping Greece, said Germany was on track for a broad parliamentary majority in favour of the plan.

Conservative chancellor Angela Merkel, accused by many analysts of aggravating the Greek crisis by foot-dragging, told parliament yesterday the success of the rescue package would determine "nothing less than the future of Europe - and with it the future of Germany in Europe".

Troubles in the euro zone drove US treasury debt prices higher as investors fled to safe havens, including gold and the dollar, worried the crisis could cross the Atlantic and thwart the US recovery.

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