Greek uncertainty rises as Europe demands vote

FRANKFURT (MarketWatch) � Uncertainty over Greece�s ability to secure a second bailout and avoid a messy default was on the rise Friday after euro-zone finance ministers demanded the nation�s parliament first ratify unpopular new austerity measures.

A small party in the country�s ruling coalition withdrew its support for the measures and a handful of cabinet ministers, including the deputy foreign minister, resigned as Greek workers began a two-day strike and protesters clashed with police in central Athens ahead of a parliamentary vote expected to take place as soon as Sunday.

Prime Minister Lucas Papademos, a former central banker who was tapped last fall to a lead a unity government, is expected to convene a cabinet meeting later Friday, news reports said.

�The willingness of Greece�s politicians to stomach the additional austerity and commitments demanded by the Eurogroup [of euro-zone finance ministers] cannot be taken for granted,� said Chris Scicluna, economist at Daiwa Capital Markets in London. �And so, the second bailout package remains very much in limbo and the risk of a disorderly Greek default in March is still a possibility.�

Risk off

European equities tumbled to a lower close and U.S. stocks traded lower amid the uncertainty. The Athens General Index finished the session more than 3% lower. Read Europe Markets.

And in foreign-exchange dealings, the euro EURUSD �slipped to $1.3185, down from $1.3287 late Thursday. The shared currency had climbed to a two-month high earlier in the week despite a series of earlier delays on the prospective Greek bailout.

Euro-zone finance ministers, who met for around six hours in Brussels on Thursday, said they need more assurance that Greece will deliver on the additional austerity measures.

Click to Play Greeks take to the streets in protests

Protests in Greece against budget cuts, ahead of an expected vote in Parliament. (Photo: AP.)

�We do not have all the necessary elements on the table to take decisions,� said Luxembourg Prime Minister Jean-Claude Juncker late Thursday in Brussels. He chairs meetings of the Eurogroup.

With Greek elections possible as soon as April, Juncker made clear that the country�s euro partners want proof the measures will be put in place.

�In short, no disbursement without implementation,� he said.

While Greece�s parliament is expected to pass the measures, stakes remain high.

�The risk of hiccups in the process to avoid a Greek default has increased. Clearly several euro-area member states are now ready to choose the other road � Greek default and possibly euro exit � instead of giving more funds, if Greece is not committed to deliver the necessary austerity and structural reforms,� wrote economists at Danske Bank in Copenhagen.

�40 years of submission�

But Giorgios Karatzaferis, leader of the nationalist LAOS party, said at a news conference Friday that the party won�t back the austerity plans, saying they amounted to a further �humiliation� of the country, according to reports.