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The banking industry has described its agreement with Greece to cut its debts as "unprecedented".
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The Greek PM has warned the nation of a collapse in living standards if MPs fail to pass an unpopular austerity bill demanded in return for a 130bn-euro ($170bn; �110bn) bailout.
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A group of banks and other investors in Greek government debt have agreed to exchange their debt for new bonds that are worth much less and pay a modest rate of interest.
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In a TV address, Lucas Papademos said Greece was "just a breath away from Ground Zero".
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Including the reduced interest rate, the losses to the banking industry are more than 70%.
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The cabinet has approved the measures but five government ministers resigned.
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For some of Europe's biggest banks, that means heavy losses.
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Unions are holding a 48-hour strike, and thousands of protesters rallied in central Athens against the measures.
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"The losses are going to be substantial, but they are contained and there's a longer-term benefit for the system in having a core group of investors sit down across the table and coming together," said Charles Dallara, managing director of the Institute for International Finance, which negotiated on behalf of the banking industry.
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Riot police were on standby after clashes on Friday, but the demonstrations were mostly peaceful.
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The austerity measures are being demanded by the eurozone and IMF - they must now be passed by the Greek parliament and approved by European finance ministers.
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Some MPs from the governing parties are expected to vote against the bill, the BBC's Mark Lowen in Athens reports.
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But analysts say the package should still have enough support in parliament, because Pasok, the largest party, and its coalition ally New Democracy account for more than 230 deputies out of a total of 300.
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Catastrophe fear
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Mr Papademos said the measures would "decide the country's future" and enable it to stay inside the euro.
Continue reading the main story
Continue reading the main story
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�Start Quote
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What went wrong in Greece?
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An old drachma note and a euro note
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    Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.
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 +
The opening ceremony at the Athens Olympics
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    Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.
 +
 
 +
A defunct restaurant for sale in central Athens
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    The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.
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    In the long and tawdry history of governments borrowing more than they can afford, this represents a remarkably huge, unprecedented write-off�
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A man with a bag of coins walks past the headquarters of the Bank of Greece
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    Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.
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image of Robert Peston Robert Peston Business editor, BBC News
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Workers in a rally led by the PAME union in Athens on 22 April 2010
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    There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.
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     More from Robert
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Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010
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     The EU, IMF and European Central Bank agreed 229bn euros ($300bn; �190bn) of rescue loans for Greece. Prime Minister George Papandreou quit in November 2011 after trying to call a referendum.
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It is perhaps no great surprise that Greek banks are the most exposed to Greek debt.
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Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
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    Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.
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According to Barclays Capital, the top two holders of Greek debt are National Bank of Greece, with 13.2bn euros ($17.5bn), and Eurobank EFG, which holds 7.3bn euros ($9.7bn).
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Lucas Papademos
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    Under Prime Minister Lucas Papademos, Greece is trying to negotiate a big write-off of private debts and secure a second bail-out of 130bn euros ($170bn, �80bn) before a 20 March deadline.  
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Once the bond exchange is completed, those holdings will be worth less than half their current value, and if you include future interest payments, worth 70% less.
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Outside Greece, French and German banks hold the most Greek debt.
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"The social cost of this programme is limited in comparison with the economic and social catastrophe that would follow if we didn't adopt it," he said.
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The last bailout?
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Many foreign banks have already accepted that their investments in Greece are now worth just a fraction of their original value, irrespective of the latest deal.
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Savings would be lost, the government would be unable to pay wages or salaries, and imports of fuel, medicine and machinery would be disrupted, he added.
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In its most recent set of results, France's BNP Paribas, the biggest owner of Greek debt outside Greece, said that it had written down the value of its Greek debt by 75% on its balance sheet.
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Earlier, Greek conservative leader Antonis Samaras said all his party's MPs must vote in favour of the bailout law.
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And according to the Barclays report, Commerzbank is the biggest holder of Greek debt among Germany's banks. Its holdings of government debt have complicated its efforts to raise new finance to boost its balance sheet.
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Mr Samaras, whose New Democracy party is a member of the governing coalition, said any rebels would face being dropped as parliamentary candidates.
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For the average investors, the effect of Tuesday's bailout is limited. Most insurance companies and investment firms have little or no exposure to Greece.
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Deputy Foreign Minister Mariliza Xenogiannakopoulou, who quit on Friday afternoon, is the most senior defection so far.
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Some hedge funds have built up their holdings in Greek debt, but it is likely to be a relatively small amount, perhaps less than five billion euros.
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Her Pasok party, the largest in the coalition, also suffered the loss of a deputy labour minister on Thursday.
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It is thought some will refuse to sign up to the bailout deal and hope to be repaid in full.
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The austerity cuts include:
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Analysts are now wondering whether the latest deal will be enough. The Greek economy is in recession, making it even more difficult for the nation to pay its debts.
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    * 15,000 public-sector job cuts
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    * liberalisation of labour laws
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    * lowering the minimum wage by 20% from 751 euros a month to 600 euros
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    * negotiating a debt write-off with banks.
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"The debt sustainability analysis is much worse than people were expecting," said Laurent Fransolet, head of fixed-income strategy research at Barclays Capital.
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These were presented to a eurozone ministers in Brussels on Thursday evening.
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"It's ambitious and we cannot be sure this is the last bailout. Does it buy a bit more time? Yes. But the next one will have to involve the official sector much more."
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But they want a further 325m euros in savings for this year and also insist that Greek leaders give "strong political assurances" on the implementation of the packages.

Revision as of 11:44, 15 January 2013

The Greek PM has warned the nation of a collapse in living standards if MPs fail to pass an unpopular austerity bill demanded in return for a 130bn-euro ($170bn; �110bn) bailout.

In a TV address, Lucas Papademos said Greece was "just a breath away from Ground Zero".

The cabinet has approved the measures but five government ministers resigned.

Unions are holding a 48-hour strike, and thousands of protesters rallied in central Athens against the measures.

Riot police were on standby after clashes on Friday, but the demonstrations were mostly peaceful.

The austerity measures are being demanded by the eurozone and IMF - they must now be passed by the Greek parliament and approved by European finance ministers.

Some MPs from the governing parties are expected to vote against the bill, the BBC's Mark Lowen in Athens reports.

But analysts say the package should still have enough support in parliament, because Pasok, the largest party, and its coalition ally New Democracy account for more than 230 deputies out of a total of 300. Catastrophe fear

Mr Papademos said the measures would "decide the country's future" and enable it to stay inside the euro. Continue reading the main story What went wrong in Greece?

An old drachma note and a euro note 

   Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.

The opening ceremony at the Athens Olympics 

   Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.

A defunct restaurant for sale in central Athens 

   The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.

A man with a bag of coins walks past the headquarters of the Bank of Greece 

   Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.

Workers in a rally led by the PAME union in Athens on 22 April 2010 

   There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.

Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010 

   The EU, IMF and European Central Bank agreed 229bn euros ($300bn; �190bn) of rescue loans for Greece. Prime Minister George Papandreou quit in November 2011 after trying to call a referendum.

Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money. 

   Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.

Lucas Papademos 

   Under Prime Minister Lucas Papademos, Greece is trying to negotiate a big write-off of private debts and secure a second bail-out of 130bn euros ($170bn, �80bn) before a 20 March deadline.

BACK 1 of 8 NEXT

"The social cost of this programme is limited in comparison with the economic and social catastrophe that would follow if we didn't adopt it," he said.

Savings would be lost, the government would be unable to pay wages or salaries, and imports of fuel, medicine and machinery would be disrupted, he added.

Earlier, Greek conservative leader Antonis Samaras said all his party's MPs must vote in favour of the bailout law.

Mr Samaras, whose New Democracy party is a member of the governing coalition, said any rebels would face being dropped as parliamentary candidates.

Deputy Foreign Minister Mariliza Xenogiannakopoulou, who quit on Friday afternoon, is the most senior defection so far.

Her Pasok party, the largest in the coalition, also suffered the loss of a deputy labour minister on Thursday.

The austerity cuts include: 

   * 15,000 public-sector job cuts
   * liberalisation of labour laws
   * lowering the minimum wage by 20% from 751 euros a month to 600 euros
   * negotiating a debt write-off with banks.

These were presented to a eurozone ministers in Brussels on Thursday evening.

But they want a further 325m euros in savings for this year and also insist that Greek leaders give "strong political assurances" on the implementation of the packages.

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