ATHENS (Reuters) - Tens of thousands screamed “Thieves, Thieves!” outside Greece’s parliament in violent protests this week that killed three people -- and for the first time, the prime minister was listening.

After seven months in office, George Papandreou finally appears to be heeding calls for retribution as he tries to push through his pain-for-aid measures on a society enraged over chronic corruption.

“My rage is huge when I see the tragedy of the looting of Greek people’s wealth,” he told a parliament debate on his austerity bill on Thursday, accusing the previous government of waste and corruption.

“One minister paid 28,000 euros (24,103 pounds) for office curtains...They will be prosecuted.”

Opinion polls show Greeks are more willing to suffer belt-tightening measures to exit a debt crisis shaking the euro zone if those they hold responsible for their woes -- corrupt politicians and businessmen -- pay.

Analysts say tackling high level corruption means changing a legal system set up to protect parliamentarians and confronting resistance from within his own party, also spoiled from years in power in the 1980s and 1990s.

“Will he do it? He has no other option,” said Costas Panagopoulos, head of ALCO pollsters. “Society wants blood and if you don’t give them some, they will drink yours.”

Papandreou came to power promising to tax the rich and help the poor, and the re-birth of the state after a series of scandals helped bring his conservative opponents down.

But he quickly found himself dealing with Greece’s biggest economic crisis in decades. His plans for “green growth” were set aside and the first wave of tax hikes and wage cuts prompted public demands that those responsible go to jail.

SLOW TO REACT

His government repeatedly said it was not the time for punishment but for change, a position analysts said helped create an impression that all Greek politicians conspire to cover up for each other.

They say he has been slow on the social justice front, but after this week’s protests he can no longer underestimate the force of people’s anger.

“He appeared reluctant but he is now being forced by social unrest,” said Costas Vergos, head analyst at Cyclos Securities. “I believe he can make it if he tackles corruption and tax evasion.”

Papandreou must push through 30 billion euros worth of austerity measures in exchange for a 110 billion euros EU/IMF bailout, taking on angry unions protesting wage and pension cuts with strikes and rallies.

“We understand the rage and we feel it as well,” said Papandreou, son of the socialist maverick Andreas. “We are all to blame for not daring to make the necessary changes sooner.”

But sympathy will not be enough. Papandreou must effect a reform in norms as vast as his father’s policy of socialist “Change” in the 1980s, when he modernised society and generous EU subsidies helped create a large, affluent middle class.

Analysts say his task is to limit a gargantuan public sector bloated through decades of political influence and introduce meritocracy. The private sector must be freed from both state constraints and money.

If such problems, which seriously erode competitiveness, are not addressed Greece will continue to be the trigger for a wider euro zone crisis, and face more painful measures down the line.

NEED TO REFORM

A main hurdle to fighting corruption is a constitutional law protecting politicians suspected of wrongdoing from prosecution unless parliament lifts their immunity. Several parliamentary committees have been investigating scandals but no politician has ever been brought to justice.

The ruling party itself has shown some desire to reform. In a letter to parliament, 48 of its younger members petitioned to investigate all those who have held public office in the last 20 years and confiscate whatever cannot be justified.

“We must have catharsis in our political system to rescue our political ethos and restore our role as parliamentarians,” they said.

Papandreou himself, widely seen as untouched by scandals, is for the first time showing he is determined to pay the price for change. Analysts said he could ask his deputies to abandon their parliamentary immunity, pressuring opposition parties to do the same, and allow the necessary sacrifices.

In a show of political muscle flexing, on Thursday he expelled from the party three deputies who voted against his austerity bill, cutting his parliamentary majority to 157 in the 300-seat house.

“I have known George Papandreou for years and I see he is now more determined than ever,” said a government official close to the premier. “He is willing to pay the political cost to turn the page for Greece.”