Greek MPs set to accept bailout deal

The Greek prime minister, Lucas Papademos, who warned of economic chaos if the austerity bill is not passed. Photograph: Menelaos Myrillas/AFP/Getty Images

Greek MPs appear set to agree a deeply unpopular bailout deal setting out €3.3bn in wage, pension and job cuts as the price of a €130bn (£108bn) rescue package from the EU and the International Monetary Fund.

Greece needs the funds – the country's second rescue package since 2010 – before 20 March to meet debt repayments of €14.5bn, but the bill has stirred anger on the streets and turmoil within the Greek coalition government.

Addressing the nation late on Saturday, the prime minister, Lucas Papademos, warned that failure to back the bill would mean a disorderly default and "set the country on a disastrous adventure".

"It would create conditions of uncontrolled economic chaos and social explosion," Papademos said. "The country would be drawn into a vortex of recession, instability, unemployment and protracted misery, and this would sooner or later lead the country out of the euro."

Greece's Communist party, which opposes the cuts, accused the PM of "lying and scaremongering".

Germany continued to pile pressure on the Greek administration, sayingEurope needed action, not words. Berlin was instrumental in insisting Athens made deeper cuts after the Greek government presented its budget plans at a eurozone meeting last week, and there is a growing rift between the countries.

"The promises from Greece aren't enough for us any more," the German finance minister, Wolfgang Schauble, said in an interview published in the Welt am Sonntag newspaper.

German opinion polls show a majority of Germans are willing to help, he added, "but it's important to say that it cannot be a bottomless pit".

"That's why the Greeks have to finally close that pit. And then we can put something in there," he said. "At least people are now starting to realise it won't work with a bottomless pit.

"Greece needs to do its own homework to become competitive – whether that happens in conjunction with a new rescue programme or by another route that we actually don't want to take."

Asked whether that other route meant Greece would have to leave the eurozone, Schauble said: "That is all in the hands of the Greeks themselves. But even in the event, which almost no one assumes will happen, they will still remain part of Europe."

He said the rescue efforts for Greece were proving more difficult than efforts to unify Germany in 1990. "The reason is the realisation that there is a need for change, and change dramatically, still needs to develop further with a lot of people in Greece," he added.

Greece's 300-seat parliament is due to begin debating the bill at 2pm local time (midday GMT) before a vote, expected to take place late in the evening.

Demonstrators have pledged to turn out in force on the main square in front of the assembly at 6pm, although rainy weather may limit the number of protesters.

The austerity measures include €300m in pension cuts and a 22% reduction in the minimum wage from about €750 a month. The bill aims to cut Greece's state sector workforce by about 150,000 by 2015. It also provides for a bond swap to ease Greece's debt burden by cutting the real value of private investors' bond holdings by some 70%.

On a day of dire warnings and stormy debate on Saturday, leaders of the coalition told uneasy MPs to support the bill or be dropped from party lists for an election that could happen by April.

At least 20 deputies from the two main parties in the Papademos coalition threatened on Saturday to vote against the bill, but the bulk of the coalition's 236 MPs are still all but certain to approve the package. Six members of the cabinet have resigned.

The finance minister, Evangelos Venizelos, said the deal had to be approved by Sunday or the country would miss a deadline, on 17 February, to offer the debt "haircut" to its private sector bondholders.

Eurozone finance ministers also expect Greece to explain by then how €325m from this year's total budget cuts, as yet unspecified, will be achieved before it agrees to the bailout.

Bailout documents released on Friday left blank the amount of the full rescue package, and Venizelos said Greece might need €15bn more to save its banks, confirming estimates from EU officials.

The EU and the IMF have said they will not release the aid without clear commitments by the main party leaders that reforms will be implemented, whoever wins the next election