Europe kept up the pressure on Greece to push forward with a painful austerity program on Wednesday after the government jumped a crucial hurdle in averting the euro zone's first debt default.

With thousands of demonstrators chanting insults outside, the government of Prime Minister George Papandreou survived a confidence vote early on Wednesday and was due later in the day to approve new belt-tightening measures needed to free up more loans and avoid bankruptcy.

There was wide relief at the successful confidence vote but European leaders clearly want to keep the government's feet to the fire in the more difficult next stage -- implementing reforms rejected by many of the population.

There is no alternative. We have a plan, now it's time to act on it, it's time to implement it. There is no alternative. There is no Plan B, European Commission spokeswoman Pia Ahrenkilde-Hansen told a news conference.

Chancellor Angela Merkel, leader of EU paymaster Germany, said Greece must more aggressively privatize state-run firms and boost tax revenues. She said the confidence vote was an important step but Greece must now push through the reforms.

French government spokesman Francois Baroin said: We will not accept any payment incident, or default.

Papandreou aims to get parliamentary approval for a package of spending cuts, tax hikes and state asset sales by June 28 and implement it by July 3 to secure 12 billion euros ($17 billion) in aid that is vital to avoid immediate bankruptcy.


The confidence vote followed a European ultimatum linking release of the money -- the next installment of a 110-billion-euro EU/IMF aid package -- to a new five-year belt-tightening plan.

Without the aid, Athens would plunge into default next month, sending shock waves through the global financial system.

EU leaders meeting in Brussels on Thursday and Friday will discuss the next steps in supporting Greece although Merkel said she expected no concrete decision on more funding until Athens approved the package.

The leaders are expected to make a political commitment to go on funding Athens for the next 12 months to convince the IMF to release the next tranche of loans in early July, once the fiscal package is implemented.

The euro rose in hopes that the immediate threat of market chaos could be avoided. But the gains were short-lived as traders remained worried about the will to implement harsh austerity measures against fierce public resistance and by doubts about Greece's ability to reduce its debt burden without some form of restructuring.

It's not over, one trader said.

After some brief scuffles between police and protesters after the late night vote, the streets of Athens were calm on Wednesday with traffic running normally through Syntagma square where 20,000 demonstrators besieged parliament on Tuesday night.

The government won the late-night confidence motion by 155 to 143 with two abstentions after all of Papandreou's Socialist Party deputies voted solidly with the government, signaling they had been brought into line after earlier dissent.

But with unions bristling for a fight and much of the public outraged by new austerity measures as Greece suffers its worst recession for 37 years, implementing any reforms will be a tough challenge for the government.

Within the parliament there is no problem at all, the real problem is in society, said Costas Panagopoulos of pollster ALCO. There's a lot of disappointment in the Greek society, there's a lot of anger and there's no hope at all. The new minister of finance and the government...have to offer some hope otherwise I cannot see how the government could remain stable.


Euro zone creditor governments were starting talks with commercial banks and insurers on Wednesday about a voluntary private sector contribution to a second rescue program for Greece, a source in the German government said.

Private bondholders will be asked to commit to rolling over their Greek bonds when they mature, but Berlin was forced to drop a more ambitious plan for a bond swap extending maturities by seven years after the European Central Bank objected.

Merkel, under domestic criticism for agreeing that any private sector involvement should be voluntary, on Wednesday rejected pressure to force creditors to take a haircut, saying it would cause contagion into other weak euro economies.

Papandreou, who reshuffled the government last week to stifle dissent in his party, said before the vote: If we are afraid, if we throw away this opportunity, then history will judge us very harshly.

The new mid-term plan envisions raising 50 billion euros by selling off state firms and includes 6.5 billion in 2011 fiscal consolidation, almost doubling existing measures that have helped extend a deep recession into its third year.

Most analysts remain skeptical that Greece will be able to repay its vast public debt pile of 340 billion euros, 1.5 times its annual economic output and more than 30,000 euros for each of its 11.3 million people, even if the reforms are implemented.

Mohamed El-Erian, head of Pimco, the world's biggest bond fund, said he expected Greece to end up defaulting on its debt.

For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default, he said.

But for now both markets and European policymakers are willing to give Greece the benefit of the doubt.

Although this clearly is not going to be a long-term fix, investors see this as a chance that the can will be kicked further down the road, said David Dietze, Chief Investment strategist at Point View Financial Services.

New Finance Minister Evangelos Venizelos, in an attempt to answer a key grievance of protesters, told parliament the government's top priority would be to build a fairer tax system.

He is expected to drop plans for an increase in fuel tax and for a special levy on real estate, instead targeting the self-employed -- who are widely believed to be amongst the worst tax evaders -- while lowering the burden on low-paid employees.

Euro zone officials have told Reuters the plan for the new bailout, meant to extend Greece's year-old 110-billion-euro deal and fund it into late 2014, would feature up to 60 billion euros of fresh official loans, 30 billion euros from the private sector and 30 billion euros from privatizations.

(Additional reporting by Renee Maltezou, Lefteris Papadimas in Athens, John O'Donnell in Brussels and Faith Hung in Taipei; Writing by Barry Moody; Editing by Sonya Hepinstall)