ATHENS (Reuters) - The Greek cabinet approved a draft bill spelling out reforms required by the EU and the IMF on Friday, taking Athens closer to getting a new 130 billion-euro bailout after the prime minister warned the alternative was "catastrophe."
All eyes will now be on parliament, which is scheduled to vote on the bill on Sunday. Analysts expect the deeply unpopular package to be adopted but Greek politics remain highly unstable.
Even after this is done, the EU also wants a further 325 million euros of spending cuts and clear commitments by main party leaders that the reforms will be implemented before it agrees to release the aid.
Technocrat Prime Minister Lucas Papademos told his turbulent coalition government earlier on Friday to accept the harsh international bailout deal or condemn the nation to disaster.
"We cannot allow Greece to go bankrupt," he told a cabinet meeting. "Our priority is to do whatever it takes to approve the new economic program and proceed with the new loan agreement."
Papademos, the sole technocrat in a coalition of feuding politicians, tried to assert his authority after six cabinet members resigned over EU and IMF demands for yet more pay, pension and job cuts in return for the financial rescue.
The austerity plan includes lowering the minimum wage by 22 percent, axing 150,000 public sector jobs and reducing pensions.
"It goes without saying that whoever disagrees and does not vote for the new program cannot remain in the government," he said in televised remarks.
Greece faces bankruptcy unless it gets the funds from the IMF and European Union by March 20 when it has to repay 14.5 billion euros ($19 billion) in maturing bonds.
"It was approved," a minister who took part in the cabinet meeting said about the draft bill.
A former central banker, Papademos tried to raise Greeks' spirits as the nation enters its fifth year of recession, saying economic growth would return in 2013 despite accusations that the austerity is merely driving Greece into a downward spiral.
Any alternative to the rescue would be much worse, he said in opening remarks using the word "catastrophe" four times.
Earlier, far-right leader George Karatzaferis said he could not back the tough terms attached to the bailout and all four cabinet members of his LAOS party submitted their resignations, along with two from the socialist PASOK party.
Papademos was not expected to react immediately to the loss of his transport minister and five deputy ministers. "There will be no reshuffle today," said a government official.
Adding to the confusion, Greek media said that two of the LAOS cabinet members had resigned only under orders from Karatzaferis and would support the deeply unpopular package when
parliament votes, possibly on Sunday or Monday.
The Socialist PASOK party, one of three in the "national unity" government, called on its lawmakers to vote for the bailout, and analysts said they still thought parliament would pass the deeply unpopular package.
Outside parliament, police fired tear gas at black-masked protesters who threw petrol bombs, stones and bottles at the start of a 48-hour general strike against the cuts ordered by the "troika" of international lenders. But the street protests were relatively small compared to last year's mass rallies.
A group of 35 lawmakers from PASOK, whose public support has collapsed, protested against pressure from euro zone ministers.
"Our lenders are once again presenting the dilemma: either you take the measures or you lead the country to a default," they said in a protest letter.
The biggest police trade union said it would issue arrest warrants for Greece's international lenders for subverting democracy, and refused to "fight against our brothers." A daily newspaper depicted German Chancellor Angela Merkel in a Nazi uniform with a swastika armband.
Finance Minister Evangelos Venizelos made clear Greece has little choice but to accept the harsh conditions attached to the bailout, and a plan to halve its huge debt to private bondholders, to avoid a chaotic default next month.
"It's time for us to make up our minds," he said after euro zone finance ministers refused to give immediate approval to the bailout plan. "Unfortunately, we have to choose between sacrifices and even bigger sacrifices."
LAOS leader Karatzaferis begged to differ. "Greeks cannot be hostages and serfs," he thundered. "We were robbed of our dignity, we were humiliated. I can't take this. I won't allow it, no matter how hungry I am.
He turned his anger on Germany, which will fund much of any bailout and has lectured Greeks on the need to tighten their belts.
"Germany decides for Europe because it has a fat wallet and with that fat wallet it rules over the lives of all the southern countries," he told a news conference.
His party has 15 deputies in the 300-seat parliament, dominated by the socialist PASOK and conservative New Democracy parties, which both support the Papademos government.
The EU and IMF have been exasperated by a series of broken promises and weeks of disagreement over the terms of the bailout, which would be Greece's second since 2010, with time running out to avoid a default.
The ministers gave Athens six days to prove its commitment by passing key legislation, finding an extra 325 million euros in savings, and providing assurances that the program will remain in force after any election.
Summing up their deep mistrust, Jean-Claude Juncker, chairman of euro zone finance ministers, said: "In short, no disbursement before implementation."
The euro and European shares fell, reflecting concern that the Greek bailout and debt swap could fail.
Some protesters compared Greece's plight, facing bankruptcy unless it accedes to the demands of international lenders, to its seven years under military dictatorship.
On Syntagma Square in central Athens, songs from the struggle in the 1960s and 1970 against a junta of colonels boomed out over loudspeakers.
Police said three policemen and two protesters were slightly injured in clashes. Five people were detained.
With Greece probably at its lowest ebb since the junta was overthrown in 1974 and democracy restored, protesters denounced the "troika" of lenders - the European Commission, European Central Bank and International Monetary Fund.
"Do not bow your heads! Resist!" They chanted. "No to layoffs! No to salary cuts! No to pension cuts!
Analysts say only a breakdown of party discipline can sink the package in parliament, where the coalition has a huge majority.
"There will most likely be a string of defections and abstentions but I don't believe that the measures will fall short of the majority required," political analyst George Sefertzis told Reuters.
Additional reporting by Dina Kyriakidou and Karolina Tagaris in Athens, Stephen Brown in Berlin; Writing by David Stamp and Ingrid Melander; Editing by Andrew Roche