ATHENS Greece sought to play down reports on Friday that it was considering a solution to its debt crisis involving bigger losses for its banking creditors, while a fresh round of strikes gripped the country in protest against new austerity measures.
Parliament is likely to approve the moves, which include unpopular new taxes, to secure the next tranche of the heavily indebted nation's EU and IMF bailout, avoiding a disorderly default that would rock the euro zone, political analysts said.
Popular resistance to the cutbacks is raging, however, reflected by strikes that brought the transport system to a standstill on Thursday, with unions arguing that Greece's economy cannot cope with the terms of the deal imposed on it.
Two pro-government newspapers reported Finance Minister Evangelos Venizelos had told ruling Socialist deputies he saw three scenarios to resolve the crisis, including one involving a 50 percent haircut for bondholders.
That amount was more than double a figure agreed in July by some European banks that said they would contribute to a bailout by taking a 21 percent loss on some Greek bond holdings in a debt restructuring deal.
But a high-level government source denied the reports and Venizelos, heading to Washington for talks with Greece's lenders, said the country was committed to implementing the second, 109-billion-euro bailout it has agreed to.
"All other discussions, rumors, comments, and scenarios, which are diverting our attention from this central target and Greece's political obligation ... do not help our common European task," he said in a statement issued by his ministry.
Citing a person who it said had heard the speech, newspaper Ta Nea quoted Venizelos as saying "it would be dangerous to request" the 50 percent haircut -- the term used to describe a cut in value of a security held by an investor.
Venizelos, a former defense minister known for his oratory and razor intellect, also said: "This would require an agreed and coordinated effort by many," the paper reported.
Prime Minister George Papandreou echoed his finance minister, but he, too, stopped short of a denial.
"Because many things are being said and written, concerning scenarios, I stress one more time that we have chosen to implement the July 21 deal," a statement from Papandreou's office quoted him as telling MPs.
Greek bank stocks, under pressure from a downgrade by ratings agency Moody's, fell a total of 8 percent after the reports.
"NO SUCH SCENARIO"
Three Socialist deputies who said they were present at the session at which Venizelos tried to rally support in the ruling party for a new austerity campaign also denied that he had floated the idea during his remarks.
"I categorically deny it. There is no such scenario," lawmaker Theodora Tzakri told Reuters.
Analysts said the denials showed Venizelos had probably not floated the idea of the bigger haircut at the meeting.
But they would not rule out that he may have privately raised the idea in another forum to gauge political reaction, underscore the gravity of the situation, or possibly to push back against pressure for even more draconian austerity.
"I'm not in a position to comment on rumors ... but we've said for a long time it's inevitable for Greece to default, so that they might privately be looking for options would not be a surprise," said Ben May, an analyst at Capital Economics.
In Washington at the IMF's annual meeting, Venizelos will hold talks with officials from the EU and the Fund who have expressed impatience with the lack of progress in cutting back a bloated public sector, threatening to withhold funds.
The cabinet's latest round of cutbacks in response include cutting the salaries of 30,000 public employees and giving them a year to find new work or lose their jobs, as well as deeper pension cuts and the extension by two years of a real estate tax hike imposed to make up for a shortfall in budget revenue.
Analysts say the measures should be enough to persuade the IMF and EU to release an 8-billion-euro ($11 billion) aid tranche that Athens needs to avoid running out of cash to pay civil servants' salaries in October.
The lenders' experts are now scrutinising the new strategy and will discuss specifics in Washington. They are expected to return to Athens early next week.
The first hurdle comes next Tuesday when lawmakers vote on a property tax rise introduced earlier this month. The cabinet aims to extend the tax and draw up laws for the other new austerity steps once they have agreed with the troika.
Political dissent is rising but analysts said there are no signs that anti-austerity voices in the ruling PASOK party will oppose the reforms with the same intensity that almost overturned a similar fiscal package, and could have toppled the government and triggered a messy default, in June.
"I believe the measures will be passed, because PASOK's parliamentary group has made a commitment and must definitely sign the agreement (for the second bailout) in order for the tranche to be disbursed," PASOK deputy Evangelos Argyris told Greek Vima radio.
STRIKES AND RALLIES
Strikes on Thursday snarled traffic and stranded tourists at Athens hotels while activists marched on parliament in the first big demonstrations since violent clashes with police in June.
Athens' metro and trams were on strike on Friday. Taxi drivers will stage a 48-hour strike next week, and other rallies are expected in front of parliament in central Athens.
Greece's two biggest unions, representing about half of the country's 5-million-strong workforce, are gearing up for two 24-hour strikes and rallies in October.
The country remains bitterly divided between private sector workers who say a bloated state bureaucracy is strangling Greeks and public servants who say the biggest problems are political corruption and tax evasion.
Unions say austerity measures will put further pressure on a middle class already hit by an economy expected to contract by at least 5 percent this year, after a 4.4 percent slump in 2010, and unemployment of 16 percent.
"When we see that there is not a rudimentary equal distribution of the weight and it all falls on the usual people, the wage earners and pensioners, how can we not react?" said Yannis Panagopoulos, head of private sector union GSEE.
(Additional reporting by Angeliki Koutantou; Writing by Michael Winfrey; Editing by Peter Millership)