George Papandreou, the Greek prime minister, has vowed to pursue reforms aimed at tiding over the country's crippling debt crisis despite popular resentment.

A day after protesters angry with harsh austerity measures clashed with riot police in the capital, Athens, Papandreou said he would also seek to build consensus among various political parties while sticking to the course of reforms.

"We have some tough negotiations ahead of us and the next few days will be crucial ... These are critical moments for the country and we must have stability," he told parliament on Thursday.

But his tough talk notwithstanding, analysts said it was increasingly unclear whether Papandreou would be able to form a new governing team that he announced on Wednesday.

"It will be very hard now to find good people to form a government now. They don't trust [Papandreou] after all the flip-flops he has made," said former finance minister Stefanos Manos. "Who will make privatisations now in all this turmoil?"

Resignations

Ruling party lawmakers were holding a caucus meeting of the parliamentary group to debate the government's policies.   

"We are not governing the country the way we should... We are going from depth to depth, from dilemma to dilemma," ruling party deputy Nikos Salayannis said outside parliament.

Two other Socialist deputies stepped down on Thursday in protest and will be replaced by other party members.

Greece has to pass a 2012-2015 austerity programme worth $40.5bn by June-end or face being cut off from rescue funding by European countries and the IMF.

The measures including a five-year campaign of tax hikes, spending cuts and sell-offs of state property.

With its credit rating deep in junk status, Greece is being kept afloat by the $159bn EU-IMF rescue loan programme and will need additional support to cover financing gaps next year.

To meet its commitments, Papandreou's Socialists abandoned a pledge not to impose new taxes and drew up a four-year privatisation programme worth $72bn.

This has fuelled ongoing protests against austerity by public utility employees and other affected groups.

Markets plunge

Stock markets around the world fell significantly on Thursday amid fears over Greece's escalating debt woes.

European shares fell sharply, with banking stocks under particular pressure, over fears of contagion.

The falls followed losses in Japan, where the market closed down 1.5 per cent.

Greece has warned it will be unable to pay next month's bills without a $17bn loan installment from the EU and the IMF, part of a broader $159bn bailout package agreed last year

The BBC reported that a leaked account of a meeting between EU commissioners on Wednesday suggested that the commissioners have a "profound sense of foreboding" about Greece and the future of the eurozone.

The account, written by an official who attended the meeting, said this was in reaction to the "damning failure" of eurozone ministers to agree a new bailout for Greece on Wednesday.

The author cautioned that the markets would now "smell blood".

"Our response to the challenges we face is stability and to stay on our course of reforms," he said in an address to parliament.