The cutbacks were announced on Sunday, as a precondition for the loans from the International Monetary Fund and the other 15 EU countries using the euro. The aid, spread over three years, is Greece's only hope of paying off euro8.5 billion ($11 billion) in debt that matures May 19 — or defaulting.
Yet market reaction to the bailout deal was "lukewarm at best," as although Greek and peripheral bond yield spreads narrowed the euro slipped against the dollar, said analyst Mitul Kotecha at Credit Agricole CIB Research.
"Concerns about parliamentary approvals, implementation-execution risk, prospects for relatively weaker growth in Europe, as well as contagion to Spain and Portugal, has tempered any enthusiasm towards the package," Kotecha said.
About 4,000 striking teachers and students marched in Athens to protest the cuts, carrying black flags, while some scuffled with police. Earlier, about 100 Communist Party supporters broke through the gates of the Acropolis, the city's chief ancient monument, and hung banners in Greek and English reading "Peoples of Europe Rise Up," to the bemusement of tourists allowed in despite the disruption.
"Despite the large size of the loan package there are growing worries that it will be insufficient to cover Greece's funding requirements over the next three years. All of this implies that the euro will remain vulnerable for some time yet."
A Greek default would be a serious blow to the shared euro currency and inflict losses on banks holding Greek bonds in France and Germany. The bailout is intended to reassure markets Greece will not default and thus prevent the debt crisis from spreading to other financially shaky countries such as Spain and Portugal.
Euro zone governments loaded up on debt and ran large deficits during the recession and financial crisis of the past two years. Fears that their economies will not grow fast enough to enable them to pay those debts have led markets to fear they will default.
As a result, bond investors are demand higher and higher rates of interest to lend to what are increasingly viewed as risky borrowers.
On Tuesday, the interest rate gap, or spread, between Portuguese and benchmark German 10-year bonds rose 22 basis points, or 0.22 percentage point, which means Lisbon would have to pay 5.2 percent in interest to borrow on the markets. In comparison, Greece would currently have to pay a prohibitive 9.5 percent — so much that the country was effectively shut off from the bond market.
Portuguese stocks were down 2.2 percent, while the Madrid bourse was shedding 2.66 percent. Athens stocks tumbled 6.5 percent.
EU spokesman Amadeu Altafaj Tardio said the funds will be available on time, despite the complexities involved in 15 countries having to approve the deal.
"I can assure you we will be ready to meet the commitments on Greece," he said. "(My) clear impression is that we will no doubt have the critical mass of funds by mid May."
On Tuesday, France's lower house of parliament adopted a budget amendment allowing the government to release French funds for Greece's bailout. The text must still go before the Senate, its final step in parliament.
France has committed to providing up to euro16.8 billion in its share of the three-year plan, under which Greece will receive money quarterly as its progress in meeting its austerity targets is reviewed.
Germany's Cabinet has approved legislation to give Greece euro22.4 billion ($29.6 billion), and on Tuesday Finance Minister Wolfgang Schaeuble said local banks are willing to help with financing — although it was not clear how much they might contribute.
"With the joint euro-zone-IMF fiscal lifeline increasingly likely to be in place in a matter of days, the possibility of a near-term Greek funding crisis has been greatly reduced," Ben May, economist at Capital Economics Ltd, said. "But with government debt set to soar to astronomical levels this may just mark the end of one act in the tragedy."
The new Greek measures will cut deeper into pay for the country's estimated 750,000 civil servants, reduce all pensions and further hike consumer taxes. State employees, including school teachers and hospital workers, began a 48-hour strike Tuesday, which led to several domestic flights by Greece's Olympic Air and Aegean Airlines being canceled.
Larger protests are expected Wednesday, when a general strike will halt air, sea and rail transport while effectively shutting down the country's bloated public sector.
As chanting protesters stomped past Parliament, Greece's center-left government submitted draft legislation to lawmakers to save euro30 billion ($40 billion) — the country's current budget deficit — through 2012. The bill is expected to be voted on by Thursday, and should pass easily as the governing Socialists hold a strong majority in the unicameral house.
A few hundred pensioners held their own demonstration, marching through central Athens to protest pension cuts and consumer tax hikes, chanting "Stealing our pensions is not the answer."
"We won't let them steal our livelihoods, they are cheating us," said Dimos Koumbouris, head of a pensioners' union. "Tomorrow everything will close, factories, shops, everything — they will hear our voice very clearly."
