Greece prepares for next hurdle in bailout
The Greek government survived a confidence vote but has barely a week to get new austerity measures passed by parliament to avoid a potential default.
European leaders breathed a sigh of relief but kept up the pressure on Greek Prime Minister George Papandreou, who faces a vote on June 28 to push though more spending cuts, tax rises and asset sales.
However fearing the financial chaos that any Greek default would ignite, EU leaders promised him additional funds to help the shrinking Greek economy to get back on its feet.
Greece’s creditors, particularly its partners in the 17-country eurozone, are demanding that Mr Papandreou get parliamentary approval for budget cuts and new taxes and for a sell-off of government assists by the end of June.
Only then will they hand over €12bn in bailout funds that Greece needs to avoid bankruptcy in mid-July.
A default could drag down Greek and European banks, endanger the finances of other weak eurozone countries such as Portugal, Ireland and Spain, and spark financial uncertainty across world markets.
German Chancellor Angela Merkel warned that a default would have “completely uncontrollable” consequences on the financial markets, but she insisted that private creditors should voluntarily share the pain of a second Greek bailout.
The mood in financial markets was calm after the confidence vote early today, especially when compared to firestorm last week when Mr Papandreou’s government was teetering on the brink following violent protests against the new austerity measures.
He still needs to convince several of his own Socialist MPs to support the austerity measures.
All 155 in Mr Papandreou’s Socialist party voted to back their leader in the 300-seat parliament, eliminating the chance of early elections. As they voted, several thousand protesters outside parliament chanted “Thieves! thieves!” and riot police guarded the building.
The country has struggled to meet its targets, missing many, and is now in negotiations for a second bailout.
Many financial experts believe that despite Mr Papandreou’s best efforts, the task is too great and Greece is heading for a default.
If he does not get the new austerity measures passed, the 17-nation eurozone would have to hold emergency talks and would come under enormous pressure to find a new solution for the debt crisis that threatens all of them.
In Berlin, German Chancellor Merkel warned that imposing a so-called haircut on Greek debt – reducing the amount to be repaid – would endanger banks and other creditors who hold Greek bonds, as well as institutions that sold insurance policies against a default.
The French government called the Greek confidence vote “a very important step” toward more European aid for Greece, while the European Commission promised to stump up some cash to kickstart the Greek economy if the austerity measures are passed.
Tensions remained on the streets of Athens, with 100 members of the powerful GENOP electricity workers union occupying the Transport Ministry to protest over plans to privatise their company. Workers began rolling 48-hour strikes on Monday causing brief, country-wide blackouts.
