Greek Prime Minister George Papandreou faces a crucial parliamentary vote of confidence in the new cabinet he formed to face down increasing opposition to austerity measures needed to avoid a national debt default.
A default by Greece, where the country finds itself unable to pay back its debts, could spark a financial maelstrom around the world, dragging down Greek and European banks as well as stoking renewed fears over the public finances of other euro countries, such as Portugal, Ireland and Spain.
If 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 critical new austerity bill by the end of the month. Without parliamentary approval for the new measures, Greece will not get the next installment of its bailout — funds the country needs to avoid default.
The prevailing view is that Papandreou will get the necessary support. His socialist party holds a five-seat majority in the 300-member legislature, and a simple majority is needed to pass.
Should he clear the confidence hurdle, Papandreou faces the potentially more difficult task of getting Parliament to back the new austerity package.
Facing ongoing budget shortfalls, Greece's government must impose more spending cuts and tax hikes by the end of the month if it is to receive the next installment from its 110 billion euro international bailout in mid-July — just in time to avoid a default.
If parliament approves the 28 billion euro ($40 billion) worth of austerity measures, on top of an unpopular 50 billion euro privatization program, then eurozone finance ministers will meet on July 3 to approve the next, 12 billion euro installment of Greece's bailout loans.
Papandreou was forced to reshuffle his cabinet last week following a major political crisis that saw him face an open rebellion from within his own party and initiate talks to form a coalition government with the opposition, which eventually collapsed. He replaced his finance minister, appointing Evangelos Venizelos, the defense minister and his main rival from within the party, to the post.
Greece's European creditors and the International Monetary Fund are also pushing for the main opposition party to support the measures, which have already sparked violent street protests. Conservative opposition leader Antonis Samaras has repeatedly said the initial bailout agreement should be re-negotiated, and has called for cutting taxes as a means of reinvigorating the economy and lifting Greece out of recession.
Following a meeting with Papandreou in Brussels Monday, European Council head Herman Van Rompuy said "national consensus is a prerequisite for success."
Venizelos insisted Van Rompuy's comments did not mean that a favorable vote by the opposition party on the new austerity bill had been set as a condition, though he said the government would want this.
"The reference to national consensus is a reference to the need for there to be a climate and atmosphere of unity and responsibility," Venizelos said, according to a statement released by his office.
The statement said Venizelos spoke by telephone on this subject with Samaras Tuesday. It said Samaras understood the need to stick to the timeline agreed in the eurogroup, under which the new austerity bill and an additional implementation bill must be passed before the end of June, regardless of the opposition's position on the measures.
Protesters have scheduled rallies and demonstrations outside parliament in the early evening ahead of the confidence vote, while Greeks faced power cuts as part of a series of 48-hour rolling strikes called by workers at the power company against its privatization.
A key requirement from the eurozone and the IMF is that Greece steps up its privatization drive.
European officials are also discussing a similar-sized second bailout for Greece as it has become evident that Greece 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 in Brussels late Monday after meeting with Papandreou, but added that the crucial vote was the one on the extra austerity package at the end of the month.
"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. Now is the time to redouble efforts: for the sake of the Greek people, and for all of Europe."
While Greece has been locked out of the international market by exceptionally high interest rates demanded for its 10-year bonds, it has continued to issue shorter-term debt in the form of treasury bills.
On Tuesday, it raised another 1.625 billion euros, more than the 1.25 billion euros initially planned. However, it had to pay an interest rate of 4.62 percent for investors to part with their cash for just 13 weeks, up from 4.06 percent at an equivalent auction a month ago.
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