Athens: Greece`s embattled Prime Minister faced a crucial confidence vote in parliament Tuesday over the new cabinet he formed to help pass the unpopular austerity measures needed to avoid a national default.
If Prime Minister George Papandreou`s new government fails to get the necessary Parliamentary support in a midnight vote Tuesday, it would throw into question whether it can pass a new austerity bill by the end of the month as demanded by international creditors.
Expectations that Papandreou would win lifted world markets. His Socialist party holds a five-seat majority in the 300-member legislature, and a simple majority is needed to pass.
"Indications over the last 24 hours or so have certainly been that the government will survive, if only because the alternative would be so dire," said Beat Siegenthaler, an analyst at UBS.
A prominent dissenter within Papandreou`s socialist party, Nikolas Salagiannis, said he would vote in favor of the government after Papandreou reshuffled his cabinet last week and replaced his finance minister.
"This has generated a slim hope that the issues can be addressed," Salagiannis said. "We back the new government."
Another dissenter, Socialist lawmaker Panagiotis Kouroumplis, said he too would lend his support.
"I will back the confidence vote — but I won`t give a blank check," Kouroumplis said during the debate.
Without parliamentary approval for the Cabinet and the new measures, Greece will not get the next euro12 billion ($17 billion) installment of its euro110 billion ($157 billion) bailout from the European Union and the International Monetary Fund — funds the country needs by mid-July to avoid default.
A default by Greece could spark a financial maelstrom around the world, dragging down Greek and European banks as well as stoking renewed fears over the finances of other eurozone countries, such as Portugal, Ireland and Spain.
Protesters planned to rally outside parliament ahead of the confidence vote, and Greeks faced rolling power cuts Tuesday by striking workers at the state power company, which is up for privatization.
If he loses Tuesday night, Papandreou will have little choice but to call early elections or try to form a coalition government. However, all opposition parties have said they want elections.
But even after winning, he faces an even more difficult task: Getting parliament to back euro28 billion ($40 billion) worth of spending cuts and tax hikes as well as an unpopular euro50 billion ($71 billion) privatization program by the end of the month.
If the new austerity measures pass, the finance ministers of the 17-nation eurozone will meet July 3 to give Greece its next bailout installment.
Papandreou was forced to reshuffle his cabinet last week amid strong resistance from his own party to the austerity measures, and replaced his finance minister with Evangelos Venizelos, the former defense minister.
Salagiannis said public opinion was still against the austerity measures.
"Make no mistake, our connection with people in the street and in the squares is dwindling by the day," he said in Parliament. "We have gone from austerity to more austerity, from denial to denial to get where we are ... and the public`s tolerance has been used up."
Greece`s European creditors and the IMF are also pushing for Greece`s main opposition party to support the austerity measures, which have sparked violent street protests. But Conservative leader Antonis Samaras says Greece`s bailout deal should be re-negotiated and has called for cutting taxes to reinvigorate the economy and lift Greece out of recession.
Venizelos spoke with Samaras on Tuesday, and his office released a statement saying Samaras understood the government`s need to stick to the timeline agreed by the eurogroup.
A key requirement from the eurozone and the IMF is that Greece steps up its privatization drive.
European officials are also discussing a second, similar-sized bailout for Greece since it`s obvious the country won`t be able to return to the bond markets and raise money to pay creditors any time soon.
"I trust that the new Greek government will receive the confidence of parliament," European Commission President Jose Manuel Barroso said after meeting with Papandreou, but added the crucial vote was the one on the new austerity package.
"I therefore trust that Greece`s elected representatives will back these measures next week in a spirit of national and indeed European responsibility," Barroso said. "These choices are not easy, but nor are the problems that need to be addressed. Now is not the time to falter."