The fragile coalition cobbled together by politicians pushing divergent agendas suffered a major blow after four Cabinet ministers resigned before an EU austerity was placed for a parliamentary vote.
Anxious investors throughout Europe joined troubled politicians in Italy, Portugal and Spain in reacting with dismay to the shock outcome. Both private and public investors and the three economically pressed countries stand to lose in unpredictable but severely damaging ways if Greek austerity measures fail.
The choice before Greece was narrower than last year and could force the country to choose between severe cuts everywhere, including pensions, or a sovereign default.
Analysts predicted the four ministers who quit won't be the last. They include Pasok socialist party's Deputy Foreign Minister Marilisa Xenogiannakopoulou, who resigned to protest the measures.
It wasn't clear if the right-wing Laos party members quit only in protest over the cuts or as part of an ongoing power struggle, in which conflicting political groups hope to wrest government from Prime Minister Lucas Papademos.
At issue is the second international financing package for the country, which has drawn Greeks into the streets to vent their outrage over the spiral of individual and corporate hardship.
Strikes and work stoppages across the country have aggravated the crisis.
The new package demanded by the European Union and the International Monetary Fund is the price Greeks must pay for a $170 billion bailout.
An upbeat Papademos said he was confident he could push the austerity package through Parliament. He vowed not to allow Greece to go bankrupt and warned he could do without any member of the Cabinet who disagreed on the package deal.
Laos right-wingers have singled out Germany for their verbal assaults, calling the austerity cuts a German-led humiliation of the Greek nation.
Enraged demonstrators took to the streets of Athens before the start of a two-day strike and attacked police who tried to stop them from approaching Parliament.
The last round of government spending and resulting backlash on the economy threw the economy into a deep recessionary spin, with job losses steadily rising. Current estimates say at least a fifth of the Greek work is without any means of earning.
Greek politicians and debt inspectors have been in talks on averting default and a possible Greek exit from the 17-nation eurozone in the 27-nation EU.
Representatives of the so-called troika of creditors -- the EU, the European Central Bank and the IMF -- talked with Papademos and other senior ministers on cutbacks, including those directly affecting supplementary pensions.