Greek government survives vote as Barroso pushes new plan

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Greece's embattled government survived a confidence vote yesterday (21 June) that was crucial to avoiding a sovereign default, as the European Commission unveiled a new plan to boost Greek growth with EU funds.

The Greek assembly voted confidence in the government, reshuffled by Prime Minister George Papandreou to stiffen resolve behind a painful new austerity programme, by 155 votes to 143 with two abstentions.

All Papandreou's Socialist Party deputies voted solidly with the government.

"If we are afraid, if we throw away this opportunity, then history will judge us very harshly," Papandreou said in a final appeal for support before the vote.

Protesters besieged the parliament, chanting slogans against the politicians, shining hundreds of green laser lights at the building and into the eyes of riot police outside and pushing their hands forward in a traditional insult. They held up a mock gallows with several nooses.

The successful vote, closely watched outside Greece, had an immediate impact with the euro making gains, although traders said continuing concerns about implementation of the measures contained the rise.

European Commission President José Manuel Barroso expressed his immediate relief. "Tonight's vote in the Greek Parliament removes an element of uncertainty from an already very difficult situation," he said, adding that Papandreou could now concentrate on implementing the reforms.

EU funds to boost Greek economy?

Barroso also proposed to help boost the Greek economy through an early payment of one billion euros in EU funds earmarked for Athens under a plan of reducing economic and social differences in the 27-nation bloc.

He noted, however, that there was no alternative to the painful reform programme agreed with officials from the Commission, the European Central Bank and the International Monetary Fund.

"Greece has the potential to access a significant amount of EU money under cohesion policy," Barroso told a news conference.

"We should concentrate these funds on where it matters […] we should find ways to front-load and accelerate them, so that Greece gets the benefit now," he said.

The initiative would help address one of the key concerns of financial markets – that even if Greece implements fiscal austerity, it will still be unable to pay back its huge debts because its economic growth is too slow.

Papandreou's government must rapidly pass two more tests – enacting the austerity plan and the laws needed to implement it – to win a new bailout to avert the euro zone's first sovereign default and possible global economic disaster.

Ultimatum

The vote follows a European ultimatum requiring the debt-choked Mediterranean state to implement a new five-year package of deeply unpopular reforms in two weeks or miss out on a 12-billion euro aid tranche and plunge into bankruptcy.

Barroso had piled on pressure before the vote, saying that Greece faced a "moment of truth" and needed to show it was genuinely committed to the reforms.

"No-one can be helped against their will," he said.

Acting IMF chief John Lipsky sent a similar message, saying international lenders were willing to help peripheral eurozone economies as long as they tried to carry out reforms.

He said the Greek fiscal system was broken but could be fixed with the right political will.

Papandreou stifled dissent within the party last week by replacing unpopular government figures with critics of the plan. The government must hammer through the five-year package of 28 billion euro ($39.84 billion) in tax hikes and spending cuts by 28 June.

It must then push through laws implementing the reforms – potentially more difficult as it will tackle individual privatisations, tax measures and spending cuts – in time for an extraordinary meeting of eurozone finance ministers on 3 July.

The cabinet will meet today to approve a draft bill implementing the measures, officials said.

The government had been widely expected to survive the confidence vote. Defeat would have led to political chaos and early elections which PASOK would likely lose.

Greek bank shares gained more than 6.0 percent and 10-year Greek bonds rose in a sign of optimism on Tuesday. The euro and European shares also rose.

Having already missed targets agreed in its first, year-old bailout, Athens needs the reforms if it wants to receive the next tranche of those funds and secure a second bailout worth an estimated 120 billion euros.

The new mid-term plan envisions raising 50 billion euros by selling off state firms and includes 6.5 billion in 2011 fiscal consolidation, almost doubling existing measures that have helped extend a deep recession into its third year.

Most analysts remain sceptical that Greece will be able to reduce its vast sovereign debt pile of 340 billion euros, or more than 30,000 euros per head of its 11.3 million population, even if it passes the reforms.

Inspectors from the International Monetary Fund and European Union arrived on Tuesday to examine a request by newly appointed Finance Minister Evangelos Venizelos for changes to the mid-term plan. Greece's government has said the lenders' inspectors would discuss changes "at a technical level".

Eurozone officials have told Reuters the plan for the new bailout, meant to extend Greece's year-old 110-billion-euro deal and fund it into late 2014, would feature up to 60 billion euros of fresh official loans, 30 billion euros from the private sector and 30 billion euros from privatisations.  

EURACTIV with Reuters

 

In May 2010, the EU and the International Monetary Fund (IMF) extended a €110 billion loan to Greece to prevent the country from sinking into bankruptcy.

In the beginning of 2010, it was discovered that Greece was sitting on debt worth more than €215 billion, while its annual budget deficit was 13.6%.

A second bailout is now being discussed with the EU and the IMF as it appears that Greece will be unable to pay back its debt.

The new deal being discussed would total €120 billion, half coming from new EU/IMF aid and the other half mainly from privatisation of public companies such as the post, energy and telecoms as well as new austerity measures.

However, the EU is still divided over the participation of private bondholders. Germany wants private investors to share part of the cost. The European Central Bank disagrees, warning that this would spread a new wave of contagion to other countries via commercial banks, which would see some of their assets depreciated to junk status.

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