ATHENS, Greece (AP) — Greece’s lawmakers approved a key austerity bill yesterday needed to avert default, despite a second day of rioting on the streets of Athens that left dozens of police and protesters injured.

The passage of the bill was a decisive step for the country to get the next batch of bailout loans from international creditors due from last year’s financial rescue. Another bill has to be passed today for the government to secure the money.

The bill to cut spending and raise taxes by ¤28 billion (US$40 billion) over five years has provoked widespread outrage, coming after a year of deep cuts that have seen public sector salaries and pensions cut and unemployment rise to above 16 per cent.

While deputies voted, stun grenades echoed across the square outside the Parliament building and acrid clouds of tear gas hung in the streets. Authorities and emergency services said 21 police and 15 protesters were injured and transferred to hospitals, while 26 people were detained.

The European Union and International Monetary Fund have demanded both bills pass before it releases ¤12 billion of bailout funds — without the money, Greece was facing defaulting on its debts by the middle of next month, potentially triggering a banking crisis, particularly in Europe, and turmoil in global markets.

“We must avoid the country’s collapse with every effort,” Prime Minister George Papandreou said in his speech prior to the vote. “Outside, many are protesting. Some are truly suffering, others are losing their privileges. It is their democratic right. But they and no one else must never suffer the consequences and for their families of a collapse. We must do everything so that there is no freeze in payments.”

The Greek vote was greeted by a sense of relief in Europe’s capital cities, who have been fretting about the impact of a potential Greek default both on their banking systems and on the future of the euro currency itself.

“That’s really good news,” German Chancellor Angela Merkel said when told of the outcome of the vote on her way out of an economic forum in Berlin. Germany is Greece’s biggest creditor.

Equally, relief was the main response in markets too. Soon after the vote, the euro was trading at a fairly elevated level around the US$1.44 mark while stock markets around the world were posting big gains.

In Greece, the main Athens stock market closed up 0.5 per cent at 1,264, while borrowing costs eased some 80 basis points from a morning high, with the yield on 10-year bonds settling at the still high 16.55 per cent.

“The fact that the Greek parliament has passed the government’s medium-term fiscal plan clearly reduces the chances of a near-term disaster,” said Ben May, European economist at Capital Economics.

The unpopular package of spending cuts and tax hikes passed by 155 votes to 138, with five opposition deputies voted “present” — a vote which backs neither side.

A sole deputy from the governing socialists, Panayotis Kouroublis, dissented over government plans to sell a further stake in Greece’s state electricity company and was soon expelled from the parliamentary group by Papandreou.

In a dramatic vote, socialist deputy Alexandros Athanassiadis, who had previously vowed to vote against the bill, overturned his decision at the last minute and backed the package, saying he had been swayed by the prime minister’s comments in parliament.

A conservative deputy broke ranks with her party’s line to also vote in favour, bolstering the government’s majority of five seats in the 300-member parliament.

In the run-up to the vote, violence engulfed the square outside for the second day, while services across the country ground to a halt in the last day of a 48-hour general strike. Riot police fired volleys of tear gas at swarms of young men who were hurling rocks and other debris as well as setting fire to trash containers.

After a lull in the fighting around the time of the vote, the riot started up again with intensity.

Protesters threw flares and orange and green smoke bombs, and a few sprayed fire extinguishers at police, who picked up rocks and tossed them back. Heavy clouds of tear gas wafted over the chaotic scene in front of parliament.