Greeks protest, almost half oppose austerity

ATHENS (Reuters) - Thousands of Greeks marched on parliament on Saturday in a show of unabated public anger after Prime Minister George Papandreou vowed to push on with an austerity campaign that a poll showed half the country opposed.

In a move meant to stifle dissent in his Socialist Party, Papandreou on Friday dismissed Finance Minister George Papaconstantinou, architect of a new five-year austerity program that has sparked weeks of protests.

The reshuffle coincided with a pledge by France and Germany to continue funding Athens, a move that may have bought Greece and its fellow euro zone members time to prevent a messy default, even if doubts over its longer-term solvency persist.

The European Union and International Monetary Fund have made the reforms a condition for a new bailout package worth an estimated 120 billion euros ($170 billion) that Greece, shut out of markets, will need to fund itself through 2014.

Around 5,000 protesters from the Communist group PAME marched into Athens' central Syntagma square -- where demonstrations turned violent earlier this week -- chanting "the measures are killing us!"

French activists also performed with a three-meter puppet depicting a bloodied figure of Lady Justice to rhythmic drumming, in a gesture of solidarity with Greek protesters who have camped in the square for three weeks.

"What has changed with the reshuffle? Nothing," said Costas, a 22-year-old student who has been camping on the square since the beginning of the month. "We are not planning to leave unless they take back the measures."

An opinion poll taken before the reshuffle showed 47.5 percent of respondents wanted parliament to reject the reform package and for Greece to hold early elections.

Just over a third -- 34.8 percent -- wanted it to be approved so Athens could secure the second bailout.

Constantinos Routzounis, head of pollsters Kapa Research, said Greeks were not against austerity in itself but thought the reforms were unfairly aimed at the poor while wealthy tax evaders and corrupt politicians got off lightly.

"People don't want Greece to exit the euro zone. They do want fiscal consolidation measures -- but more just ones," he told Reuters.

Greece's biggest union GSEE, representing around 2 million workers in the private sector, called for a 48-hour strike when parliament votes on what has been dubbed the mid-term plan. The government hopes that will happen by end-June.

RESHUFFLE MIGHT WEAKEN REFORMS

Papandreou appeared to curb a revolt in his party by including some of the austerity package's harshest critics in the new administration, but that might also lead to a weakening of the reforms.

He named political heavyweight Evangelos Venizelos, his biggest party rival, as finance minister.

Shortly after his nomination, Venizelos said he would travel to Luxembourg on Sunday to meet euro zone finance ministers and ask them to allow some "improvements ... for social justice" in the reforms, fuelling concerns that the new government has less resolve to hammer through the austerity program.

The finance ministers are expected to agree to release a 12 billion euro tranche of an existing year-old bailout that Greece needs to pay back debt maturing in July and August and avoid default.

"They've bought themselves time until September," said Howard Wheeldon, strategist at BCG Capital Partners in London.

"Germany and France are the main countries involved here, and neither of them are going to let the euro fail, and they're not going to let Greece fail."

Luxembourg's Jean-Claude Juncker, chairman of the euro zone finance ministers' Eurogroup, criticized German pressure to involve bondholders, telling a German newspaper this has pushed up the cost of the bailout.

"We are playing with fire," he said, adding that in the worst case, ratings agencies could declare a default leading to dire consequences for the currency union.

Papandreou's new cabinet is expected to survive a parliamentary confidence vote on Tuesday night, and then approve a package which envisages 28 billion euros in tax hikes and spending cuts by 2015.

But Greek media were less certain about implementation, an issue that dogged Venizelos's predecessor when he struggled to meet deficit targets agreed with Greece's bailout lenders.

"Greece needs a strong government. But does it need a strong government to finally implement what has been agreed with the EU or to break these deals?," columnist Yiorgos Karipidis wrote in main Greek financial daily Imerisia.

FEARS OF DEFAULT

On Saturday, German Finance Minister Wolfgang Schaeuble said all parties negotiating a new bailout had agreed that private creditors should be involved on a voluntary basis but details on how to do this still needed to be worked out.

A day earlier, German Chancellor Angela Merkel backed away from a demand that private bond holders swap their holdings for new Greek debt with maturities of seven years.

She said she now believed that an option based on investors voluntarily maintaining their exposure was a "good foundation" for a deal.

In St. Petersburg, Spanish Prime Minister Jose Luis Rodriguez Zapatero also said the private sector would voluntarily take part. "Greece will be able to come out of it with the help of the IMF and Europe," he said.

"That will certainly cost money, efforts will have to be applied, but simply because we are going to do it the private sector will voluntarily participate in this process. Therefore there are no other alternatives."

On Friday Merkel also brushed aside reports that Germany had been pushing to delay agreement on a new bailout until September, instead calling for the quickest possible solution.

Olli Rehn, the European Commission's top economic official, said he was confident the next tranche of EU/IMF aid would be released next month and expected euro zone finance ministers to take decisions on a successor program for Greece on July 11.

The Franco-German agreement on Friday reduced market risk premiums on Greek debt after a week-long financial retreat.

However, most economists are overwhelmingly skeptical that Greece can ever repay a debt pile that economists expect to rise to 170 percent of the country's annual economic output by 2013.

(Additional reporting by Barry Moody, Hugh Lawson in Athens, Brian Rohan in Berlin, and Tim Heritage in St. Petersburg; writing by Michael Winfrey; editing by Barry Moody and Ruth Pitchford)