27 June 2011 Last updated at 20:50 ET

Article written by Gavin Hewitt Europe editor

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Greece: The moment of truth

 

Protesters threaten to encircle parliament to prevent deputies from voting

ATHENS For months there have been protests in Greece. Hardly a day has passed without strikes.

There is rising resentment at a recession that only seems to deepen. They have had a year of austerity and now the Greek people are being asked to endure a second of cuts and tax increases. All the signs are that the Greeks have reached a limit.

Last year 400,000 jobs were lost. Almost every street in Athens has boarded-up shops where owners cannot pay their loans. The despair and bitterness are palpable.

For this year an extra 6.5bn euros (£5.8bn) in cuts needs to be found. The middle class will face a solidarity tax. The threshold at which Greeks start paying tax will drop from 12,000 euros to 8,000 euros. The self-employed will be hit with a tax levy.

By 2015 a total of 28bn euros of savings have been earmarked. A fifth of civil service jobs are set to disappear and 50bn euros must be found from privatisations.

Over the next two days MPs are to debate and vote on these austerity measures. If they vote "yes" then Greece will qualify for an emergency loan of 12bn euros (£10.7bn) from the EU and the IMF.

One bit of good news for Greece is that French banks have agreed to roll over some of Greek debt. Other banks may follow.

If the MPs vote "no" then Greece is heading for bankruptcy in mid-July and the eurozone will be thrown into turmoil. George Soros warned the other day: "Let's face it, we're on the edge of an economic collapse."

The Greek people have been told this is a historic decision. The future of the country is at stake. On the eve of the debate the Greek Prime Minister George Papandreou said it was a "unique opportunity to keep the country on its feet".

But the people no longer seem to see it that way. Polls suggest that between 70% and 80% oppose the austerity plan.

So does the opposition. They have said "we cannot support a policy that deepens the recession". Indeed the government has not answered the question as to why more austerity will work when it failed the first time round.

Even the new Finance Minister, Evangelos Venizelos, described the new measures as "tough and in many respects unfair", but he added that was the only way to complete negotiations with the country's new paymasters - the EU and the IMF.

The unions have called a 48-hour general strike. This is a now or never moment for them and they have called hundreds of thousands of activists on to the streets.

Police from all over Greece have been summoned to the capital. On Wednesday protesters threaten to encircle parliament to prevent the deputies from voting. Quite simply this is a trial of strength played out on the streets of Athens.

On paper the prime minister should win.

Greek economic hardship is reflected in the rising numbers of boarded-up shops

He has a majority in the parliament but he has doubts. Several deputies have come under fierce pressure in their constituencies to vote no.

That uncertainty has been communicated to Europe's capitals.

When I asked UK Prime Minister David Cameron at a press conference last week whether he believed in giving more money to Greece he said it was wise - particularly for banks - "to prepare for all eventualities".

German Finance Minister Wolfgang Schaeuble has sounded a similar note. In Brussels there is talk of officials working on emergency funding that might help Greece get through July whilst further negotiations take place. If correct, it would be a classic EU fudge.

Everything hangs in the balance. In the meantime much of the economy - with the exception of tourism and some exports - is unravelling.

Greek banks lost 8% of their private sector customer deposits this year. I have met several people who are moving their funds outside Greece.

Even with a "yes" vote in the parliament there have to be doubts whether all these measures - particularly the privatisations - will be implemented.

It is difficult to see how the debt mountain will be reduced. That is why most economists believe a default is inevitable - further down the road.

That is perhaps the real game here. Play for a delay, a postponement in the hope that Europe's banks will be healthier and more able to take a hit two to three years from now.