Greece is braced for another day of political chaos today as Prime Minister George Papandreou faces a knife-edge confidence vote that could torpedo his government and deepen Europe's debt crisis.

Under intense pressure from fellow EU leaders to implement a massive bailout package to prevent his country going bankrupt, Papandreou has hinted he may step down in favour of a national unity government.

His socialist PASOK party has a razor-thin majority in the 300-seat Greek parliament and the result hangs in the balance as several of the party's 152 MPs have threatened to vote against the government.

On the eve of the vote, Papandreou dramatically backed down from a shock pledge to put a hard-fought EU bailout deal to a referendum that had enraged the EU and sent markets tumbling.

And while EU officials reacted cautiously to the about-face, warning that actions not words counted, markets cheered the decision, as it eased fears the painstakingly cobbled together debt deal would fall apart.

The stock exchange in Tokyo gained nearly two percent on new hope from Greece, while the euro rose in the foreign exchange markets, despite the surprise decision from the European Central Bank to cut rates.

European markets also edged higher and Hong Kong's index was up more than three percent.

Papandreou's referendum U-turn was prompted by an offer from the conservative opposition party, New Democracy, to back the bailout fund in return for the formation of a national unity government and early elections.

Raising hopes of a political entente, Papandreou late Thursday signalled a willingness to concede to these demands and said he was not going to "stick" to power.

"I have excluded nothing from the discussion" with his political opponents, Papandreou told lawmakers late Thursday.

"Even my own position. And I am not tied to any particular post. I have already said that and I am proving it daily.

"Even my re-election does not interest me. What interests me is saving the country," the embattled prime minister said.

But the political atmosphere in Athens remained fraught in rowdy parliamentary scenes Thursday with New Democracy leader Antonis Samaras accusing Papandreou of blackmailing and lying to the Greek people in a desperate bid to cling to power.

As the turmoil on the Greek political scene intensified, the debt-wracked country, enduring its worst post-war economic crisis, is in danger of running out of cash in little over a month.

Finance Minister Evangelos Venizelos had admitted that Athens "absolutely needed" before December 15, an eight-billion-euro ($11-billion) slice of aid that has been blocked by EU leaders furious at Papandreou's referendum gamble.

For the first time, the likes of Germany's Angela Merkel raised the spectre of Greece leaving the euro, hiking the pressure on the politicians in Athens to strike a deal if they wanted to remain in the bloc.

And France kept up the pressure on Friday, with Europe Minister Jean Leonetti saying: "For the Greeks not to accept the deal is to leave Europe."

Analysts at Capital Economics said this was the most significant outcome of the Greek referendum saga.

"The fact that euro-zone leaders have for the first time openly acknowledged that a country can leave the single currency is a potentially seismic development in the evolution of the debt crisis," they said.

And economists were eyeing the vote nervously, worried that more political uncertainty could push the European debt crisis to new heights.

Barclays Capital said in a research note that the confidence vote "probably holds the greatest uncertainty" of the economic risks on Friday.

"A no vote would likely further cloud the timing of the disbursement of the sixth IMF tranche, in our view," the note said.

The confidence vote, which follows three days of passionate debate in the parliament chamber, was expected to take place at around midnight local time (2200 GMT).

The debate was expected to restart at 6pm local time (1600 GMT).

Bemoaning the fact that "Greece is once again in the world media spotlight for all the wrong reasons," the Athens news said the country was in a state of "confusion and inconsistency."

"The policies of confusion and inconsistency that have marked so much of our existence as a bailed-out nation look set to continue," the paper wrote in an editorial.

"Papandreou now has the distinction of ensuring that the deliberations of the world's 20 most economically important countries were deemed a sideshow to the latest chapter in this country's debt crisis," the paper added, referring to the G20 meeting in Cannes, southern France.