Greek government wins austerity vote

 

The Greek parliament approved detailed austerity and privatisation bills today in a crucial vote to secure emergency funds and avert imminent bankruptcy, but longer-term dangers still lurk.

Prime Minister George Papandreou secured a majority for the legislation after lawmakers backed a €28 billion five-year austerity plan yesterday, clearing the last obstacle to the next slice of aid from the European Union and the International Monetary Fund.

The euro and global stocks rose to three-week highs in anticipation of the vote as investors expressed relief that the spectre of a sudden summer default had been avoided, despite fierce public opposition to more pay and spending cuts.

Belgian finance minister Didier Reynders said euro zone finance ministers were likely to agree as a result to release a next tranche of loans to Greece at a meeting on Sunday. The IMF is set to follow suit on July 5th.

The €12 billion loan will prevent Greece defaulting in mid-July or at the latest on August 20th, when it must honour a big bond redemption, and shift the focus to a second assistance package likely to be about the same size as last year's €110 billion bailout.

But credit insurance markets are still pricing in an 80 per cent chance of Greece defaulting on its €340 billion euro debt mountain - 150 per cent of annual economic output - within five years, and a likely 40 per cent write-down for bondholders on three-year debt.

In Berlin, German finance minister Wolfgang Schaeuble said he had reached agreement with the country’s banks and he expected a euro zone deal on Sunday on private sector participation in a new assistance programme, based on a French plan for a voluntary debt rollover.

German institutes were likely to contribute €3.2 billion through this scheme - barely one-tenth of the sum sought from private bondholders. French banks and insurers have the biggest exposure among foreign holders of Greek debt. Greek banks have little choice but to roll over their holdings.


Implementing the measures will be hard for the government, which has fallen behind the opposition in opinion polls and has faced heated criticism from its own deputies during the parliament debate.

Greek police clashed again with protesters outside parliament overnight. Unions, which paralysed the country for 48 hours earlier this week, have vowed to oppose privatisation and other austerity steps.

Anger among the Greek population was underlined by violence which on Syntagma Square outside parliament as yesterday's votes on the first bill were being counted. Doctors working with the demonstrators said they had treated at least 25 people for minor injuries and hundreds with respiratory problems at the adjacent Syntagma metro station. At least 40 police officers were hurt, the police union said.

Hooded youths and police fought battles into the night, choking the city centre with tear gas and smoke from petrol bombs. The protesters set fire to the post office in the building where the Finance Ministry is located, and tried to set ablaze a bank. Across the square, the luxury King George Hotel was evacuated.