Greek MPs today imposed tax hikes and spending cuts to stave off bankruptcy amid a second day of rioting which left dozens injured.
After voting through a new austerity package today, the Athens parliament will vote tomorrow on changing the law to implement the measures.
But a 48-hour strike and violent protests have raised fears of widespread defiance of more belt-tightening.
Police fired teargas and battled masked demonstrators who attacked the finance ministry as thousands of protesters rallied outside parliament during the vote.
"Today a significant step was taken, tomorrow the second one will take place and Sunday I will be able to go to the Eurogroup meeting with credible credentials for the country," Greek finance minister Evangelos Venizelos said after the vote.
Speaking later in parliament, he denounced the clashes taking place in the streets outside.
"The police has the duty to protect law and order and face down all violent provocations," he said.
However the bitter opposition to the plan among broad sections of the Greek population was underlined by the violence which erupted on Syntagma Square just outside parliament as the votes were being counted.
With Greece stuck in its worst recession since the 1970s and a youth unemployment rate of more than 40 per cent, ordinary people face years of grim austerity and many feel deeply resentful of Greek politicians, the EU and the banks.
"Cops, pigs, murderers," chanted the crowd at a line of helmeted riot police as flash bombs and teargas projectiles thrown by police to drive back the crowd filled the square outside parliament with stinging white smoke.
One group of protesters attacked the nearby finance ministry on Syntagma Square, setting fire to a post office on the ground floor of the building.
Another group tried to set fire to an office block housing a branch of one of Greece's biggest banks while across the square, the luxury King George Hotel was evacuated.
Doctors working with the demonstrators said they had treated at least 25 people for minor injuries and 192 people with respiratory problems at the adjacent Syntagma metro station. At least 40 police officers were hurt, the police union said.
Police said 11 people were arrested and 19 people rushed to hospital. Health officials said a total of 99 people were treated in Athens hospitals.
Agreement on the €28 billion austerity package to try to lower the massive Greek deficit was a condition for receiving the next €12 billion instalment of a €110 billion Greek bail-out programme from the EU and the IMF.
Warnings that the alternative to more austerity was imminent national bankruptcy persuaded opposition MPs to back Greek prime minister George Papandreou and impose deeply unpopular cuts.
The 155-138 vote for austerity was welcomed in Brussels as the only option for a Greek economy still on the slide.
Greece needs nearly €5 billion of the latest bail-out instalment by July 15th to pay its most pressing debts.
If the necessary law changes to impose the austerity package goes through tomorrow, euro zone finance ministers are likely to nod the payment through at emergency talks in Brussels on Sunday.
That does not solve the long-term Greek crisis, and a second massive bail-out, worth more than €110 billion, is expected to be signed off for Greece later this year.
Meanwhile, the Greek government must face the fall-out from its decisions, with millions of angry workers threatening to rebel against the imposition of more job cuts, tax rises and pay cuts.
The fear in Greek political circles is of a longer-term orchestrated campaign of public sector strikes which will worsen the crisis.
But the new austerity package was hailed as a “vote of national responsibility” by European Commission president Jose Manuel Barroso and European Council president Herman Van Rompuy.
In a joint statement they said: “With today’s approval by the Greek parliament of the revised economic programme, the country has taken an important step forward along the necessary path of fiscal consolidation and growth-enhancing structural reform. But it has also taken a vital step back - from the very grave scenario of default.”
But the statement made clear the danger is not over.
It said: “Tomorrow, the eyes of Europe will again be turned towards Athens as parliamentarians are called upon to approve the implementing measures for the programme.
“A second positive vote would pave the way for the disbursement of the next tranche of financial assistance. It would also allow for work to proceed rapidly on a second package of financial assistance, enabling the country to move forward and restoring hope to the Greek people.”
World markets advanced for the third straight day and oil prices jumped today after Greece's parliament approved the vote.
The MSCI All-Country World Index climbed 1.34 per cent in its third session of gains. In Europe, the FTSEurofirst 300 index of top shares hit its highest close in two weeks, jumping 1.65 per cent.
US crude oil jumped $1.93, or 2.08 per cent, to $94.82 per barrel as the vote eased fears that a possible Greek default would derail the global economic recovery and after industry data showed big draws in US crude and gasoline stocks.
The euro was up 0.40 per cent at $1.4426 against the dollar and near the session peak of $1.4447 on expectations the next Greek vote will pass tomorrow, but concerns over whether the government can implement the measures could limit gains.
Demand for the safety of German debt receded, at least temporarily, after the approval of the plan. The cost of insuring against a Greek default was unchanged after the package was passed, and ING models showed investors still expect to receive only 60 per cent of the face value of any three-year Greek bonds they hold to maturity.
The spread between Greek government debt and German benchmark Bunds narrowed 9.5 basis points to 13.614, from 13.709 per cent yesterday.
Agencies