ATHENS (Reuters) - The Greek government overcame divisions on Wednesday to defeat an early challenge to an austerity package needed to secure vital international aid, but it still faced internal dissent and angry protests ahead of a final vote.
Prime Minister Antonis Samaras is expected to narrowly win support for the budget cuts, tax hikes and labor reforms in a parliamentary vote late in the evening. The smallest party in his conservative-liberal coalition opposes the measures.
A 'no' vote could break the fragile coalition. The opposition SYRIZA party tried to block the 500-odd page bill by forcing a vote on its constitutionality, but the measure was defeated by the government's majority.
Tens of thousands of union workers were planning to gather near parliament at around 1500 GMT, on the second day of a nationwide strike that has halted public transport, shut schools, banks and government offices, and caused garbage to pile up on streets.
Backed by the leftist opposition, unions say the measures will hit the poor and spare the wealthy, while deepening a five-year recession that has wiped out a fifth of the country's output and driven unemployment to 25 percent.
"The bailout policies are completely catastrophic, outrageously absurd, and an utter failure," Alexis Tsipras, head of the anti-bailout SYRIZA, said in an interview with the Efimerida Syntakton newspaper.
"Let's not kid ourselves. The bailouts can no longer be acceptable, not even under the toughest blackmail."
Lawmakers began a heated debate over spending cuts and tax hikes expected to be worth 13.5 billion euros which, if approved, will be key to unlocking a loan tranche of more than 31 billion euros ($40 billion) from the European Union and International Monetary Fund bailout.
The vote is the biggest test for Samaras's government since it came to power in June. A 'yes' will give Athens cash to shore up its ailing banks and pay off debt coming due late this month.
Jean-Claude Juncker, chairman of the Eurogroup of euro zone finance ministers, said Greece had to continue slashing spending in its public sector.
"Our Greek friends have no options or choice," he told the Foreign Correspondents' Association in Singapore.
"They have to do it. And my impression is that the reforms which are (being) undertaken in Greece are increasingly better understood by the Greek citizens."
Samaras has said the package will comprise the last cuts to wages and pensions, cold comfort for middle class Greeks, whose living standards have plummeted in repeated deficit-slashing schemes that have hit wage earners and retirees hardest.
"You live in constant fear and uncertainty. You never know what's waiting for you around the corner," said Panos Goutsis, 58, who works in a small corner shop in Athens.
"How many times will they tell us these are the last measures? We're sick of hearing it."
Greeks have also expressed outrage at the lackluster approach consecutive governments have taken towards catching tax cheats, with many saying officials have dragged their feet on investigations to protect a wealthy elite.
Following the publishing last month of the so-called "Lagarde List" of more than 2,000 wealthy Greeks with Swiss bank accounts, the Swiss government said on Wednesday it was looking to clinch a swift deal with Athens on taxing secret holdings.
The austerity measures are accompanied by steps to make it easier for businesses to hire and fire workers, including reductions to severance pay and the warning time employers must give workers before they let them go.
The junior ruling Democratic Left party has refused to support these, saying they have no bearing on Greece's fiscal targets under the bailout plan. Several MPs from the second ruling party, Socialist PASOK, have also wavered.
But Democratic Left deputies voted down the opposition attempt to reject the proposal on Wednesday.
The party has also pledged to show some solidarity with coalition partners by voting "present" rather than "no". Samaras's New Democracy and the remaining PASOK MPs should then be able to push the measures through with around 154 of parliament's 300 seats.
The small leftist party has also said it will back the 2013 budget in a vote on Sunday, a second hurdle Greece must clear to receive the aid tranche.
The protests will put deputies under added pressure, as throngs of detractors are expected to gather on parliament's doorstep in Syntagma Square, frequently the site of violent clashes between black-hooded demonstrators and police.
"They've taken everything we have - our money, our jobs, our lives - and they won't stop until they've finished us off to satisfy the Europeans," said Popi Alexaki, 40, a former dental nurse who lost her job in August.
"They make me sick. Enough, enough, enough!" ($1 = 0.7823 euros)
(Corrects spelling of Juncker in paragraph 10)
Additional reporting by Lefteris Papadimas and Kevin Lim; Writing by Michael Winfrey; Editing by Peter Graff, Anna Willard and Giles Elgood