The Greek government began a race for parliamentary approval of a stepped-up austerity package vital to keep the debt-laden country afloat and buy time for Europe to approve new rescue measures.
Greek officials said the IMF was seeking written commitments on its latest austerity promises before sending inspectors back probably this week to conclude a review of compliance with a €110 billion bailout programme. Greece has repeatedly missed its deficit reduction targets.
IMF and EU approval is essential to release an €8 billion emergency loan that, without which, public salaries, pensions and other bills will go unpaid in October.
Public anger over ever more belt-tightening remains high and there is increasingly open talk in Europe and beyond of a likely Greek default and a far larger haircut for investors.
Greek bank shares fell by more than six per cent to a 19-year low today on media reports of a larger than planned haircut.
"Every time such a scenario is heard, bank stocks are hurt. It would mean substantial capital requirements for banks," said Natasha Roumantzi, an analyst at Piraeus Securities.
Police fired tear gas at protesters on Sunday night outside parliament in the first such unrest after a summer lull, while unions have launched a fresh round of strikes and protests.
Austrian finance minister Maria Fekter said a debt cut for Greece, with compulsory write-downs for investors, was an option of last resort. German chancellor Angela Merkel said yesterday default was not an option because it would destroy investors' confidence in Europe.
German deputy finance minister Joerg Asmussen said euro zone finance ministers would probably not be ready to decide on releasing the aid instalment at their next meeting on October 3rd, which could trigger a cliffhanger that could unsettle markets.
Greek finance minister Evangelos Venizelos who flew home today from talks at the International Monetary Fund in Washington, is expected to lobby lawmakers on his return to pass a new property tax deeply unpopular with the middle-class, on which parliament is due to vote tomorrow evening.
Prime minister George Papandreou will discuss his reform plans with Ms Merkel in Berlin tomorrow, two days before the German parliament is due to vote on new powers for the euro zone's financial rescue fund.
Athens' chronic undershooting of agreed fiscal targets and the failure of European officials to staunch worries of a wider euro zone meltdown have hit markets and drawn rebukes from critics stretching from Washington to Beijing.
Impatient inspectors abruptly left Greece this month after finding Athens was behind on its targets but the government's agreement to tougher savings looks set to persuade the troika of IMF, European Union and European Central Bank to release fresh funds.
Investors and policymakers are watching whether Mr Papandreou can push through legislation to put the new plan in place, a process fraught with political infighting and a risk of renewed violent protest as in June.
The first big hurdle is tomorrow, when parliament is slated to vote on the property tax bill meant to close €2 billion holes in the budget this year.
