Greece sees rescue deal on Saturday, thousands protest

Greece expects to conclude talks with European Union and IMF officials on a multi-billion euro financial bailout on Saturday, a government official said, while thousands protested in Athens against planned state cutbacks.

French Economy Minister Christine Lagarde said she expected a package of 100-120 billion euros ($133-$160 billion) to help Greece out of its debt crisis, and had good hopes a deal could be reached by the end of this weekend.

The fallout from the unexpectedly large budget deficit revealed by Greece last year has exposed splits within the euro zone over how to handle a crisis that has raised pressure on the euro and borrowing costs for weaker EU economies.

Athens is negotiating with officials from the International Monetary Fund, European Commission and European Central Bank, but any deal must go to the Greek cabinet and EU governments.

We expect to conclude the negotiations with the IMF, the EU and the ECB today, the Greek official told Reuters.

Prime Minister George Papandreou's press office said a cabinet meeting on Sunday would be held at 0630 GMT, slightly earlier than first planned. It is to be broadcast live on Greek television.

In Paris, Lagarde's comments came after French President Nicolas Sarkozy held a meeting of French ministers on Saturday to discuss Greece. His office said France and Germany were determined to implement a three-year aid plan rapidly.

But a bailout will come in return for draconian budget cuts in Greece, where thousands marched on May Day shouting slogans against austerity measures they say only hurt the poor and will drag the country further into recession.

No to the IMF's junta!, protesters chanted, referring to the military dictatorship which ruled Greece from 1967 to 1974. Hands off our rights! IMF and EU Commission out!, the protesters shouted as they marched to parliament.

Police fired teargas at a group of about 20 protesters who were trying to reach parliament, a Reuters witness said. Police said they arrested three protesters, while seven policemen were slightly injured.

Greece's public sector union has also called a 4-hour strike for Tuesday, on top of a nationwide strike set for Wednesday, highlighting the challenge the government faces in pushing through the cuts it has promised potential lenders.

But Deputy Prime Minister Theodoros Pangalos said he was confident the measures would be effectively implemented and could prevent Athens from defaulting on its debt repayments.

The austerity measures will be efficient enough to avert a default, Pangalos told Reuters on the sidelines of the opening of the Shanghai World Expo.

The demonstrations and strikes are normal in a democracy. It is normal people are not happy. We will help by trying to persuade the people, introducing new developments and strategies, he said.

GREEK CUTS

Athens plans to cut its budget deficit by 24 billion euros ($31.9 billion) to secure up to 120 billion euros in aid over three years. Investors hope this will stop the Greek crisis from sinking other fragile EU economies.

But the government faces a battle with unions, angry at the scale of the cutbacks, and social unrest could spread.

More than half of Greeks say they will take to the streets if the government agrees to new austerity measures, according to an ALCO poll released on Friday by the newspaper Proto Thema.

Underscoring investors' jitters over the potential for public opposition to thwart the austerity programme, the euro dipped after the poll was published.

European officials have blamed market speculators for aggravating Greece's woes, as bets on the likelihood it might default on its debt have sharply driven up its borrowing costs.

European banks will contribute to Greece's bailout, Germany said on Friday, and that could make it easier for EU governments to persuade taxpayers to rescue Greece from its debt crisis.

A senior banking source told Reuters that Deutsche Bank AG Chief Executive Josef Ackermann, at the request of Germany's finance minister, was helping to coordinate efforts by the German private sector to support the rescue package.

The consortium has already promised to contribute between 1 and 2 billion euros, which could involve buying Greek government debt, but no formal agreement has been struck, the source said.

German Chancellor Angela Merkel, in an interview to be published on Sunday in Bild am Sonntag newspaper, said she would welcome a voluntary participation from banks.

If euro states fail to engineer a Greek bailout that calms markets, they could end up footing a bill of half a trillion euros ($650 billion) to save several nations, economists say.

Markets have worried that countries such as Portugal and Spain, whose debt was downgraded by ratings agencies this week, could be threatened unless they tackle their deficits swiftly.

The IMF believes it will take 10 years for Greece to overcome its financial problems, according to a report to appear in Monday's Der Spiegel magazine.

However, European Commission President Jose Manuel Barroso, also in Shanghai for the opening of the Expo, said on Friday in Beijing that the Greek rescue package would prevent the crisis from spilling over to other countries. It is about safeguarding the overall financial stability of the euro zone, he said.

(Additional reporting by Edmund Klamann in Shanghai; Writing by Lin Noueihed; Editing by Charles Dick)