Greek Prime Minister George Papandreou faces a confidence vote in his government today that may determine whether Greece becomes the first euro-area country to default.
Tonight's vote caps a week of turmoil for Papandreou, who fended off a revolt from the ranks of his ruling socialist Pasok party in parliament last week. That came after opposition parties rejected his call for a national unity government. European Union leaders have insisted Papandreou secure multi-party support for austerity measures that are a condition of the aid needed to avoid default as soon as next month. A vote on the fiscal plan is due next week.
“Pasok now knows it has to close ranks,” said Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London. “The situation is volatile. A negative vote by the Greek parliament could trigger a serious crisis in Europe.”
The International Monetary Fund, contributor of a third of the bailout money for Greece, Ireland and Portugal, has warned European leaders that a failure to take decisive action on the debt crisis risks triggering “large global spillovers.” At the same time, Papandreou is struggling to convince Greeks to accept a 78 billion-euro ($112 billion) package of state-asset sales and budget cuts, which include a “crisis levy” on wages.
Cabinet Reshuffle
Papandreou, 59, now 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.
In an effort to shore up political support, Papandreou on June 17 replaced finance minister George Papaconstantinou with Evangelos Venizelos, his defense minister and one-time rival for the party leadership, in a cabinet reshuffle.
The debate on the confidence motion, which began on June 19, will end around midnight. Two days later, Papandreou hopes to meet EU leaders at a summit that will discuss a new financing package to shield Greece from record borrowing costs for as many as three years. If Papandreou survives tonight's vote, he will seek approval in parliament next week for his five-year economic plan.
'National Unity'
Euro-area finance chiefs, pushing Greece to pass the laws needed to cut its deficit and sell state assets, yesterday left open whether the country will get the full 12 billion euros promised for July as part of last year's 110 billion-euro lifeline.
Greek bonds and European stocks fell after that decision. The yield on Greece's 10-year bond climbed 41 basis points to 17.35 percent. Today the yield was at 17.26 percent at 2:07 p.m. in Frankfurt. Finance ministers will meet again July 3 to decide on Greece's loans.
“Greece's national unity has become a pre-requisite for our partners,” Venizelos, 54, said after his first meeting with European counterparts in Luxembourg yesterday. “It should have been the nation's self-preservation instinct.”
'Policy Mix'
Venizelos said EU partners required the parliament to vote through the fiscal plan as well as a bill on implementing the plan by June 30, according to an e-mailed statement from the Athens-based Finance Ministry today. References to national unity pointed to the “need for a climate and atmosphere of unity and responsibility,” he said.
Defeat tonight would embolden the opposition and could lead to elections, giving Antonis Samaras, leader of New Democracy, the largest opposition party, the opportunity the pursue his vow to renegotiate the package.
“We cannot support a further policy mix exactly in line with the first policy mix which hasn't produced any of the results,” Notis Mitarachi, alternate head of economic policy for the opposition party, told Maryam Nemazee on Bloomberg Television yesterday. “We agree on the goals of the program but we disagree on the policy mix through which it's implemented.”
'Better Than Even'
Schmieding said there is “a better than even” chance Papandreou will win the vote of confidence after the reshuffle.
“Putting party stalwart Venizelos at the top of the finance ministry improves the chances that Pasok will stick together,” he said. “It is a close call.”
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 began rolling 48-hour strikes yesterday, forcing the company to conduct scheduled power cuts to prevent a blackout.
Protests outside Parliament House are held on a daily basis, prompting leftist Syriza leader Alexis Tsipras to call the gatherings “a new lower house” of parliament. Another demonstration is planned as lawmakers vote on the motion tonight.
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 popular discontent and unrest.
Bloomberg News
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