Greek Premier George Papandreou has survived a confidence vote, pledging to execute drastic austerity measures as Athens confronts a “moment of truth” in its debt crisis.
Mr Papandreou emerged triumphant from a three-day debate shortly before 1am in Athens after saying history will judge Greek leaders harshly if they give up on the recovery effort “in the middle of the road”. All but two of the country’s 300 MPs voted, 155 of them in favour of the confidence motion and 143 against.
As thousands of protesters thronged the main public square in central Athens last night, Mr Papandreou told MPs at the end of a three-day debate on the confidence motion that saving Greece was the priority. “The impression the political class in this country gives is that it hasn’t understood the seriousness of the crisis,” he said.
The vote came as the IMF warned about big risks to the economic recovery in Spain, which is battling to avoid a bailout, and the US bemoaned confusion over Europe’s strategy in the debt crisis.
Meanwhile, German chancellor Angela Merkel today rejected pressure from some German lawmakers to hit private holders of Greek bonds harder, saying that forcing them to take losses could unleash contagion in Europe and beyond that was hard to control.
She told members of the Bundestag's European affairs committee that imposing a so-called "haircut" on private Greek creditors would push countries under the EFSF (rescue mechanism) that are currently able to solve their problems on their own.
"Then we will have a situation in which other countries, but not Germany, are unable to recapitalise their banks without becoming targets of the markets, and we spark contagion in Europe that I don't want to be responsible for."
The vote clears a crucial hurdle in Mr Papandreou’s effort to avert a default on Greek debt next month by securing the release of a €12 billion EU-IMF bailout loan. He remains under huge international pressure, however, to secure parliamentary support next week for €28 billion in cutbacks and tax increases and a €50 billion privatisation plan.
A senior European official said Mr Papandreou told EU Commission chief José Manuel Barroso at a meeting late on Monday that he has support from enough MPs to win the next vote.
This is a condition of European approval for a second international bailout. In view of doubt over the country’s 12-month funding outlook, the IMF has warned it cannot continue to support the country if a second rescue pact is not agreed in the coming weeks.
Although the EU authorities are proceeding on the basis that the parliament will back the new plan next week, Mr Barroso issued a blunt warning saying Greece must clearly state whether it wants the rescue. “There has to be clear decision from the Greek parliament because no-one can be helped against their will,” he said. “Next week is the moment of truth where Greece needs to demonstrate that it is genuinely committed to the ambitious package of further fiscal measures and privatisations.”
Last night’s confidence vote in the new government Mr Papandreou assembled last week follows the collapse of his talks with opposition leaders on the formation of a unity government.
Mr Papandreou reshuffled his cabinet as a result, installing his main rival as finance minister in a bid to unify his divided Socialist party.
Weeks of political turmoil in Greece have spooked markets and stoked concern in Dublin that it will undermine Ireland’s effort to regain investor confidence As EU leaders struggle to overcome the crisis which has roiled the euro zone for 20 months, the US government expressed concern yesterday about Europe’s failure to speak with a single voice as it battles the turmoil.
In unusually pointed criticism, US treasury secretary Timothy Geithner said there was no reason why EU leaders should not be able to settle the crisis. “It would be very helpful to have Europe speak with a clearer, more unified voice on the strategy,” he said in Washington.
“I think it’s very hard for people to invest in Europe, within Europe and outside Europe, to understand what the strategy is when you have so many people talking.” The Greek crisis will be top of the agenda when EU leaders gather in Brussels tomorrow for their summer summit.
A senior source in the Greek government said Mr Papandreou will tell his European counterparts that “there’s no problem talking about having a stable government” in Greece. “It appears he will be going to Brussels in a much stronger position,” the source said.
However, officials working on the bailout remain concerned about the risk that the Greek government will not execute promised reforms.