Greece passes key austerity plan despite violence
  • This Section
  • Latest
  • Web Wrap
Last Updated: Thursday, June 30, 2011, 00:43
  
Athens: Greece's parliament approved deeply unpopular austerity measures despite worsening violence Wednesday, in a vote vital toward securing international funds and preventing the euro zone's first sovereign default.

Lawmakers approved a five-year package of spending cuts, tax rises and state asset sales by a comfortable margin of 155 votes to 138 in a roll-call vote, handing a significant victory to embattled Prime Minister George Papandreou.

"We must avoid the country's collapse at all costs. Now is not the time to step back," the Socialist premier told lawmakers in a final appeal just before the crucial vote.

The bigger than expected margin suggested the government should be able to push through laws implementing detailed budget measures and privatizations Thursday.

Outside parliament, fierce clashes raged between stone-throwing masked youths and riot police, who fired clouds of teargas from behind steel crash barriers to keep the rioters at bay. Syntagma Square resembled a battle zone at times.

One group of anarchists armed with sticks and iron bars attacked finance ministry offices just off the square, smashing windows at the entrance and on higher floors. They were driven off by police in more than two hours of cat-and-mouse clashes.

With the country on the brink of bankruptcy and social unrest mounting, it remains unclear whether the government can stick to a tight EU/IMF-imposed schedule to implement the harsh measures, even if it wins all this week's parliamentary votes.

The full pain of pay and benefit cuts and swinging tax increases has yet to be felt, and public anger is boiling.

Many economists and investors still expect Greece to default in the medium-term. A senior German ruling coalition politician, Free Democratic floor leader Rainer Bruederle, said Wednesday a debt restructuring was inevitable.

Only one PASOK party deputy voted against the plan, and he was immediately expelled from the party by Papandreou.

At least one opposition deputy broke ranks with the main conservative New Democracy party to vote "yes" on the austerity package and one of three PASOK rebels changed heart.

PASOK now holds 154 seats in the 300-member chamber and was helped by the abstention of a small center-right splinter group of five deputies led by former foreign minister Dora Bakoyanis.

Chancellor Angela Merkel of Germany, Europe's reluctant paymaster and the main contributor to the Greek bailout, was first to praise the "brave" Greek vote on the fiscal package.

The decision was "brave as well as necessary," Merkel told a meeting on financial regulation in Berlin, adding: "I find it especially regrettable that the Greek opposition is not supporting the reform package.

Expectations of the positive vote and progress in talks between banks and euro zone governments on a rollover of privately held Greek debt lifted the euro and global stocks.

Yields on bonds issued by the euro zone's weaker states fell on expectations that Athens will push the key austerity measures through parliament. European shares gained for a third straight day, led by bank stocks, as investors bet parliament would pass the plan.

"A lot of work has been done behind the scenes to ensure the proposals get passed, and that optimism is getting reflected in the share prices," said Graham Bishop, equity strategist at RBS in London.

"The passage of the austerity plan will certainly help, but that's not to say there are not any more hurdles. The next hurdle will be the implementation of the measures, and the government will be closely watched on that," he said.

DEBRIS

Despite a threat by trade unions staging a 48-hour general strike to prevent lawmakers entering the colonnaded parliament building, deputies were able to reach the chamber to debate the austerity program.

The EU and the International Monetary Fund have said Greece must adopt the austerity plan, with 28.6 billion euros ($40 billion) in savings, and the implementation measures to receive the next 12 billion euro slice of emergency loans by mid-July.

Without them, Athens would run out of cash within weeks.

The EU and IMF bailed out Greece with a 110 billion euro deal in May last year and later jumped in to keep Ireland and Portugal afloat as the euro zone reeled from high government debt in the wake of the global financial crisis.

The EU's top economic official, Olli Rehn, stressed that any further financial assistance for Greece hinged on parliament adopting the austerity package.

"The only way to avoid immediate default is for parliament to endorse the revised economic program ... They must be approved if the next tranche of financial assistance is to be released," he said in a statement Tuesday.

"There is no Plan B to avoid default," Rehn said, dismissing widespread reports that Brussels was working on a fallback plan to keep Greece afloat.

Newly appointed IMF chief Christine Lagarde called on Greek lawmakers to join together in supporting the austerity plan, although Greece's main Conservative opposition leader Antonis Samaras reiterated his objections.

FRENCH PLAN ADVANCES

If the implementation legislation passes, euro zone finance ministers meeting in Brussels Sunday are likely to agree to release the next aid tranche, with the IMF following on July 5.

Attention will then switch to putting together a second and longer-term rescue package for Greece of about the same magnitude as the initial 110 billion euro bailout.

The new program would involve some 30 billion euros in private-sector participation via a "voluntary" rollover of maturing debt, a similar sum from privatization revenues and an expected 55 billion euros in new official funding.

Banking sources said Wednesday they had received signals that credit ratings agencies would accept a French plan for a voluntary private sector rollover of Greek debt without declaring a default event that could trigger market contagion.

Euro zone banks and insurers are considering the plan under which private bondholders would reinvest half of the proceeds of maturing Greek debt in new 30-year bonds paying 5.5 percent interest plus a bonus linked to Greece's GDP growth rate.

Of the other half, 30 percent would be paid in cash and 20 percent would be invested in a "guarantee fund" of zero-coupon AAA securities with deferred interest that might be issued by the euro zone rescue fund, officials and banking sources said.

European Central Bank policymaker Juergen Stark rejected any idea of EU guarantees as part of a Greek debt solution.

Asked about a scenario in which banks would exchange their Greek bonds for new paper backed by guarantees from EU states -- an approach similar to "Brady bonds" used in Latin America in 1989 -- he said: "This instrument is disqualified." It would breach EU treaty rules, he added.

France had the largest foreign private-sector exposure to Greece at more than $56 billion, followed by Germany, at end 2010, data from the Bank for International Settlements shows.

Two sources close to the negotiations told Reuters that German banks had agreed to use the "French model" as a basis for talks with the German Finance Ministry Thursday. German Deputy Finance Minister Joerg Asmussen also called the French plan a good basis for discussions.

Bureau Report


First Published: Thursday, June 30, 2011, 00:43


comments powered by Disqus