Greece approves debt deal after PM warns of 'chaos'

Greece's cabinet today approved tough austerity measures demanded by EU and IMF creditors after the prime minister warned that a failed debt deal and default would spark "uncontrolled chaos".

The coalition government, hit by defections yesterday, approved the belt-tightening measures after a day that saw renewed street clashes between protesters and police and the start of a two-day general strike.

Unions are preparing further demonstrations for the second day of the strike.

Prime Minister Lucas Papademos issued a stern warning after six members of his coalition government resigned in protest at the new cuts.

"A disorderly default would plunge our country into a disastrous adventure," he told the cabinet.

"It would create conditions of uncontrolled economic chaos and social explosion."

He warned that "sooner or later, [Greece] would be led out of the euro" and stressed, "This is an hour of historic responsibility."

The remaining cabinet members in the early hours yesterday unanimously approved the debt deal and austerity measures, which save Greece from a disorderly default in March, the prime minister's office said.

The Athens News Agency (ANA) said the deal was submitted to parliament for a vote on Sunday but government spokesmen could not be reached for comment.

Greece was explicitly told by its eurozone partners this week that it must agree to austerity measures in order to secure the release of further loans under a $171 billion bailout pending since October.

The rescue fund is essential to stave off bankruptcy on March 20, when Athens must repay nearly 14.5 billion euros in maturing debt.

A five-week streak of gains on US markets ended yesterday after revived worries that Greece will default on its huge mountain of debt sent stocks falling.