Greece Survives Confidence Vote, Raising Rescue Chances

Tuesday, 21 Jun 2011 06:26 PM

 

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Greek Prime Minister George Papandreou won a vote of confidence, bolstering his new government’s chances of pushing through austerity measures to secure further international financial aid for the country.

A total of 155 lawmakers supported the motion in the 300- seat parliament in Athens early this morning, with 143 voting against, the speaker, Filippos Petsalnikos, said in remarks carried live on state-run Vouli TV. Papandreou reshuffled his Cabinet and sought the approval of the chamber after fending off a revolt within his Pasok party last week. That came after opposition parties rejected his call for a national unity government.

“If we give up in the middle of the road, history will judge us harshly,” Papandreou said as he wound up the debate in the legislature. “The impression the political class in this country gives is that it hasn’t understood the seriousness of the crisis.”

With the confidence vote behind him, attention now turns to whether the premier can push through parliamentary approval next week of a 78 billion-euro ($112 billion) package of budget cuts to stave off the threat of default. European finance ministers said this week that they would hold off on approving a 12 billion-euro payment to the country promised for July until passage of the plans to cut the deficit, sell state assets and impose a “crisis levy” on wages.

The euro gained after the result was announced and traded at $1.4390 in New York. Greek government bonds rose yesterday amid speculation Papandreou would win the vote. Two-year note yields, which surpassed 30 percent for the first time last week, fell 97 basis points to 27.64 percent as of 5 p.m. in London.

‘More Nervous’

“We remain a bit more nervous and uncertain about the outcome of next week’s vote,” Giada Giani, an economist at Citigroup Inc. told Ken Prewitt on Bloomberg Radio yesterday. “Most of the discontented MPs from the governing Socialist party were really debating about the content of these new austerity measures rather than the composition of the government.”

European Union leaders have insisted Papandreou secure multi-party support for the plans. The premier will now meet his counterparts at a summit in Brussels starting tomorrow that will discuss a new financing package to shield Greece from record borrowing costs for as many as three years.

The International Monetary Fund, contributor of a third of the bailout money for Greece and the two other euro-area countries that have received bailouts, Ireland and Portugal, has warned EU leaders that a failure to take decisive action on the debt crisis risks triggering “large global spillovers.”

Policy ‘Bedrock’

Acting IMF Managing Director John Lipsky said Greece’s parliament must endorse the measures to restore the country’s public finances for the fund to continue its aid.

“At the heart of the Greek program is the policy adjustment,” Lipsky said at the American Academy in Berlin yesterday evening. “If they are not approved, the bedrock of the program doesn’t exist.”

Fallout from the debt crisis is already affecting markets outside Europe. BES Investimento do Brasil SA, the Sao Paulo unit of Portugal’s largest publicly traded bank, is posting the biggest slump in the Brazilian bond market on concern the parent may have to repatriate funds. The top U.S. prime money-market funds have about half their assets in securities issued by European banks, according to a report by Fitch Ratings.

Papandreou, 59, has 155 seats in the 300-seat chamber after one Pasok deputy on June 14 resigned from the party and declared himself independent in protest of the government’s economic policies. Two days later, two socialist lawmakers quit parliament, prompting Papandreou’s party to demand an emergency meeting and stoking investor concern that his grip was slipping and the chance of default growing.

‘Change the Recipe’

Papandreou’s plan wouldn’t work because it wouldn’t restore growth to the economy, opposition New Democracy party leader Antonis Samaras told lawmakers before the vote. “We want to change the recipe,” Samaras said. “The Greek government is a source of instability.”

In an effort to shore up political support, the premier replaced finance minister George Papaconstantinou in the reshuffle on June 17 with Evangelos Venizelos, his defense minister and one-time rival for the party leadership.

“Greece’s national unity has become a pre-requisite for our partners,” Venizelos, 54, said after his first meeting with European counterparts in Luxembourg two days ago. “It should have been the nation’s self-preservation instinct.”

Draft Law

Papandreou will hold meetings with his ministers today to discuss the draft law for the government’s five-year medium-term fiscal plan, his office said yesterday. That’s one of two laws that has to be passed by parliament by the end of the month to qualify for EU aid.

More than 47 percent of 1,208 Greeks surveyed by Kapa Research SA for To Vima newspaper oppose the new austerity measures and want early elections. Almost 35 percent said the package should be approved.

Unions have called strikes against the measures. The trade union at Public Power Corp SA (PPC) began rolling 48-hour strikes on June 20, forcing the company to conduct scheduled power cuts to prevent a blackout.

Protests outside Parliament House have been held on a daily basis. About 10,000 people demonstrated as the confidence motion was debated, police said.

Papandreou has promised to call a referendum later this year on changes to the country’s political system and constitution to allay demonstrators’ concerns.

Elected in 2009, Papandreou first sought a financial rescue in April 2010 to avoid default as investors refused to finance a record budget deficit. The conditions attached to the aid have helped deepen a slump that has driven the economy into recession for a third year, lifted unemployment to 15.9 percent and fueled the popular discontent and unrest.

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