ATHENS (Reuters) - Several thousand Greeks demonstrated on Sunday against punishing austerity measures to reduce the country's debt, on the eve of make-or-break talks in Brussels on a 130-billion-euro ($171 billion) bailout to avert bankruptcy.
Greece hopes euro zone finance ministers will sign off on Monday on the rescue package funded by the European Union and International Monetary Fund, Greece's second bailout since 2010.
Sceptics, led by Germany, remain wary about Greece's determination to shrink its debt mountain. Yet failure by Athens to service its debts next month would trigger a chaotic default that would send shockwaves through the single currency.
Greek Prime Minister Lucas Papademos flew to Brussels for last-minute preparations as some 3,000 demonstrators massed on the capital's central Syntagma square.
Riot police shielded the national assembly, braced against a repeat of riots a week ago that saw buildings torched and looted across downtown Athens after a much larger rally involving tens of thousands.
"The austerity measures are really hurting pensioners - we can't just sit and take it," said retired state electricity worker Costas Xenakis, 70, whose monthly pension will be hit again by new cuts approved by Papademos' cabinet on Saturday.
Banners such as one reading "Down with the memorandum of hunger" bore testimony to the anger many Greeks feel towards a political elite that allowed the country over the years to rack up a national debt worth 160 percent of national output while the super-rich took advantage of lax tax collection.
Police said the protest was peaceful aside from some minor scuffles and stone-throwing at security forces as demonstrators started to head home.
Ahead of an election due in April, a survey released on Sunday showed the two parties that have dominated politics since the 1974 end of junta rule - Socialist PASOK and conservative New Democracy - would muster little more than a quarter of the votes between them, with parties to the left gaining ground.
One survey by pollster MRB showed that while 73 percent of Greeks want the country to stay in the single currency, just 49 percent believe it will manage to do so in the next two years.
After months of often acrimonious negotiations, Greek hopes are rising that Monday's meeting will endorse the rescue Athens needs to avoid bankruptcy on March 20 when major debt repayments fall due.
WON'T THROW OUT GREECE
Greece adopted a new wave of austerity measures last week, setting out 3.3 billion euros in wage, pension and job cuts, as well as savings on defense and health spending.
Speaking on Sunday, Austrian Finance Minister Maria Fekter said it appeared a deal was finally taking shape.
"I don't think there is a majority to go a different way because a different way is enormously arduous and costs lots and lots of money," she said in a television interview.
"The euro finance ministers and, I believe, the heads of government agree that we will not leave Greece in the lurch in the euro zone and also won't throw it out," Fekter said.
However, Jean-Claude Juncker, who will chair Monday's meeting of the Eurogroup in Brussels, had earlier made clear urgent work was still needed over the weekend to get a program to reduce Greece's crippling debts back on track.
A Greek government official said Papademos had flown to Brussels, but declined to say whom he would meet.
London-based consultancy Capital Economics warned the rescue deal could yet collapse, noting a growing number of voices suggesting the euro zone might now be better placed to cope with the shock of a Greek default and exit from the single currency.
"Some core policy-makers have suggested that the negative effects of a disorderly default might be limited and are therefore willing to walk away if Greece does not agree to additional tough conditions," it wrote.
Aside from the budget cuts, there is a push within the euro zone for Greece's public spending to be put under tighter surveillance.
MISSING THE TARGET
At stake is a target of lowering debt to a more manageable 120 percent of gross domestic product by 2020. EU and IMF officials believe that target - which assumes Greece will run a budget surplus next year, excluding the massive cost of its debts - will be missed.
Under the main scenario of an analysis by the European Commission, the European Central Bank and the International Monetary Fund, Greek debt will fall to only 129 percent of GDP in 2020, one official said.
On Sunday, senior euro zone finance officials met to discuss the analysis and find ways to bring the debt closer to the 120 percent target before the finance ministers gather on Monday.
One official said while there were still gaps to be filled, they were not so large that they risked derailing the agreement.
"I don't see anybody wanting to be responsible for pulling the plug on the deal at this late stage," he said.
Critics argue the austerity measures are driving Greece further into recession, with the contraction accelerating to 7 percent in the last quarter of 2011, making it even harder for Greece to pay back its debts. The Greek economy has shrunk 16 percent since 2008, driving up unemployment to over 20 percent.
"We are caught in a vicious circle," said Zoe Rapti, a 43-year-old teacher. "Austerity brings more and more measures. In a few months they'll be taking more from our pockets."
The euro zone is looking at modifying the deal negotiated over many months with private creditors under which they would accept a cut of around 70 percent in the real value of their Greek bond holdings.
One official familiar with the analysis said that, in order to bring the debt level closer to 120 percent, changes could be made to the interest accrued on privately held bonds, but the EU and its national institutions might also play their part.
Interest rates on EU loans to Greece could be cut, and those national central banks in the euro zone which hold Greek bonds might accept similar terms to private creditors.
The national central banks own an estimated 12 billion euros of Greek debt. The European Central Bank has refused to take part in the complex deal for the private creditors, which involves swapping old bonds for new ones with a lower face value, lower interest rates and longer maturities.
(Additional reporting by Mike Shields in Vienna; Writing by Mark John and Matt Robinson Editing by Maria Golovnina)