This article is more than 9 years old

This article is more than 9 years old

Greek unions vowed to step up the relentless stream of protests that have paralysed the debt-stricken country in the run up to Christmas, after parliament approved an austerity budget described as the toughest since the second world war.

The spectre of yet more strikes came as prime minister George Papandreou pledged to push ahead with the unprecedented economic reforms dictated by the EU and IMF as part of the €110bn (£93.5bn) bailout. In a display of his determination to override growing dissent within his own party over the measures, the socialist leader insisted he would not waver.

"We will not go bankrupt," he said addressing the 300-seat house ahead of the crucial vote. "We will do whatever it takes to succeed. We will change this country."

But despite the fighting talk, Papandreou faces what is fast being called a struggle between the gruelling conditions of the "memorandum" Greece signed with its international creditors last May and mounting anger over policies widely seen as unfair.

Short of overhauling the public sector, streamlining loss-making utilities and stamping out some 70 "closed" professions, which lie at the root of the country's lack of competitiveness, Athens risks not being given a fourth loan, amounting to €15bn, in March.

The race against time has put the government under extraordinary pressure despite the praise it has also received from the EU and IMF for reducing the budget deficit by a record 6% of GDP in 2010.

Next year's budget aims to slash the deficit to 7.4% of GDP with further cuts and tax rises worth €14bn. Additional measures were required after the EU monitoring body, Eurostat, revised Greece's budget deficit upwards to 15.4% of GDP last month.

But the policies are taking their toll. The left-leaning newspaper Ta Nea, which has excellent ties with the socialists, said the mood among MPs in the ruling Pasok party was such that ministers in charge of sensitive portfolios had stopped greeting one another.

"With the dawn of the new year the government faces a mountain of problems," the paper opined on its front page. "Their handling is resonant of a passage through a mine field."

Indicative of the charged political atmosphere, Papandreou agreed to postpone voting on reforms that would liberalise regulated professions.

In the past six months the leader has seen his parliamentary majority drop to 156 seats following the expulsion of four MPs for failing to endorse the measures.

With some openly saying that the hard-hitting budget is as far as they will go in backing Greece's ambitious fiscal consolidation programme, speculation is growing that the recession-hit country is heading for early general elections next spring.

MPs, including the former EU commissioner and veteran socialist Vasso Papandreou, have complained openly about the "breakneck" speed of reforms that have seen workers' rights, won over the course of decades, rolled back overnight.

Many fear that, with tolerance fading fast (civil servants and pensioners have seen incomes drop by 20%), Greek society could soon implode.

Opposition has been reinforced by the growing sense that despite the unparalleled austerity Greece is heading for a sovereign default. Public debt is projected to hit 160% of GDP in 2013.

This week Fitch said it had placed the country on negative watch and could downgrade its rating in the coming months.

Ta Nea also revealed today that secret negotiations were underway between the Greek government and mandarins in Brussels to restructure the debt once the bailout agreement expires in 2013.