10 February 2012 Last updated at 04:20 ET

Article written by Gavin Hewitt Europe editor

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Greece euro crisis: Most dangerous moment

 

Much will depend on the size of the crowds protesting

We have now reached the most dangerous moment in the Greek crisis.

For much of the week the Greek political leaders in the governing coalition struggled to agree to another round of austerity measures in exchange for a new bailout package.

They went as far as they could. They agreed to cuts in the minimum wage and the firing of public sector workers but two of the leaders baulked at cuts to pensions.

The problem is this: the Greek people overwhelmingly have turned against further austerity.

They do not believe it has worked. This is the fifth year that the economy has shrunk. Unemployment for 15- to 24-year-olds has reached 48%. There is a huge increase in the homeless. The signs of a broken society are everywhere.

Even those who want to stay in the Eurozone - and the polls suggest that more than 65% still do - believe that the measures demanded by the EU and the IMF are pushing Greece into a cycle of decline.

Europe's finance ministers remain unconvinced by Greek assurances. They have been let down before.

So they want the Greek parliament on Sunday to back the new spending cuts, to find further savings of 325m euros, and for the political leaders to give assurances that they will respect the terms of the deal.

All of this has to be done by next Wednesday. Expect some very tense days ahead.

National humiliation

The size of the crowds on the streets will be important. Already some politicians are wavering over whether to support the new measures. The country's deputy labour minister has resigned.

If any of the three conditions are not met by next Wednesday then Greece is heading for default.

Finance Minister Evangelos Venizelos accepts the country is being humiliated. He said to the Greek people: "The choice we face is one of sacrifice or even greater sacrifice - on a scale that cannot be compared."

Nothing underlines the humiliation more than the suggestion from France and Germany that Greece set up a separate account dedicated to repaying its debts.

Many will argue that if that happens what is left of Greek sovereignty will have been cast aside.

It is not difficult to have conversations in Greece where people say they never imagined that joining the EU would result in outsiders dictating policies to them.

Mr Venizelos frames the debate as a choice between staying in the euro or leaving. He challenges the conservative leader, Antonis Samaras, to make the choice.

The finance minister says that if you want to stay in the eurozone, then you have to agree to cuts in pensions as demanded by the EU and the IMF.

False choice?

Many will say it is a false choice. They say that the EU and IMF strategy is flawed, that it will only shrink the economy further. Yes, reforms to open up the labour market are planned but they will take time.

The most likely outcome is that Greece will meet the three conditions by next Wednesday not because they believe in the plan but because they fear the chaos of the alternative, default.

A new bail-out will buy time. A messy default will have been avoided.

The threat of contagion will have been lifted even though - almost certainly - Portugal will need some extra funding as the German finance minister was overheard accepting.

But the Greek crisis will not be over. The aim to reduce the debt to GDP ratio to 120% of 2020 will not be reached.

Whatever the assurances, some of the cuts will not be implemented. Almost certainly a further rescue lies down the road. For years to come Greece will be a troubled country with its best and brightest heading overseas.