Papandreou’s Bid to Avert Greek Default Tested as Vote Begins
Greek Prime Minister George Papandreou’s bid to avert the euro region’s first sovereign default will culminate today with a budget vote now under way in a Parliament besieged by protesters amid a wave of strikes.
Papandreou may scrape through approval as dissenters waver among the 155 members he commands in the 300-seat legislature to allow him to deliver a 78 billion-euro ($112 billion) austerity package that will determine if his indebted nation can receive further rescue funds. In a final speech to lawmakers he said that the measures are a “difficult, imperative step” and that they must rise to the occasion to pass the plan.
Outside, scores of police lined up to guard Parliament, facing down a crowd of thousands that has clogged Athens’ city center and made the legislature the focus of its ire during a 48-hour strike in protest against the austerity plan. Riot officers pelted tear gas in an attempt to disperse the throng and Molotov cocktails and stones were thrown back at them.
“The odds favor the government and a parliamentary approval,” said Wolfango Piccoli, an analyst at Eurasia Group in London. “But this will be a Pyrrhic victory and an early election later this year or early 2012 is almost certain. It is difficult to see how the current government can implement the required measures to meet the bailout conditionalities.”
Papandreou told lawmakers that he has received a European Union pledge for aid which will offer “protection from the wild wind of the markets.” Earlier this week he called on them to “do their patriotic duty” and pass the austerity bill. That, and a successful vote tomorrow to authorize implementation of the plan, would enable Finance Minister Evangelos Venizelos to appear at a meeting of European counterparts this weekend.
Thousands of chanting protesters are confronting riot police outside the chamber. Yesterday more than 20,000 gathered and 37 police were injured as hooded youths wielding clubs smashed windows at a McDonald’s Corp. (MCD) restaurant and burned vehicles. Nine people were injured in violence today, the health ministry said in a text message.
Papandreou has struggled to muster opposition backing for the package while keeping his own in party in line. He appointed a new finance minister to stem defections, survived a confidence vote and outlined 5.6 billion euros of additional budget measures, including a 5 percent levy on lawmakers’ wages. On June 24, he won a pledge for a second bailout from EU leaders on condition he can deliver domestic support.
In a move that may aid Papandreou, the Democratic Alliance, a group led by former foreign minister Dora Bakoyannis, said yesterday that its five members in Parliament should vote “according to their conscience” taking into account “the immediate danger of bankruptcy facing the country.” Bakoyannis said today that she will abstain in the vote.
Thomas Robopoulos, one of two lawmakers in Papandreou’s party who had threatened to oppose the government bill, today withdrew his objections and said he will vote in favor. Opposition lawmaker Elsa Papadimitriou pledged to defy her party leadership and support the package.
Failure to pass the two bills may lead to the euro area’s first sovereign default as Greece needs to cover 6.6 billion euros ($9.4 billion) of maturing bonds in August. Greek government officials have said they may also not have cash to pay wages and pensions by mid-July.
As Papandreou races to clinch agreement, German finance ministry officials were due to meet with banks and insurers in Berlin today. They will use a French proposal as a blueprint for discussion to seek an agreement on their role in a Greek rescue, two people with knowledge of the matter said.
EU leaders and officials have leaned on Papandreou to draw the widest possible support for a program that runs beyond 2013, when he is next slated to face the polls. EU Economic and Monetary Commissioner Olli Rehn said yesterday there is “no plan B” for the country if the laws aren’t passed.
“The European Union continues to be ready to support Greece,” Rehn said in a statement in Brussels. “But Europe can only help Greece if Greece helps itself.”
Christine Lagarde, named yesterday as the next head of the International Monetary Fund, called on Greece’s opposition parties to offer support. The IMF provides about 30 percent of the bailout funds to Greece.
“They need to put aside political differences and work in the service of their country,” she told France’s TF1 Television.
Antonis Samaras, the head of the biggest opposition party New Democracy, has defied such calls and repeated yesterday that his party will vote against the bill.
While Papandreou seemed yesterday to have enough support, there is still a danger that the package could fail to pass, according to Christian Schulz, a London-based economist at Joh. Berenberg Gossler & Co. said in a note.
“Significant risks remain,” he said. “The outcome of the Greek votes is not certain and there could still be negative surprises when it comes to the vote on the implementation law.”
Venizelos said late yesterday that the government considers any vote in favor of the austerity plan and an accompanying law as “a very brave and responsible action.” He spoke after socialist lawmaker Vasso Papandreou said she will back the package “in full knowledge that I am choosing the knife rather than the pistol.”
Apart from sales of state assets such as a stake in Public Power Corp SA (PPC), the former power monopoly and levies ranging from 1 percent to 5 percent on wages, Papandreou’s plan includes higher taxes on restaurants and bars, higher heating-oil taxes and lowering the tax-free threshold to 8,000 euros from 12,000 euros presently. Greek newspaper To Vima calculated the additional burden for an average Greek family of four at 2,795 euros a year, about the same as one month’s income.
Implementing more austerity measures threatens to deepen a three-year recession and complicate efforts to boost government revenue. Greek gross domestic product, which contracted 4.4 percent in 2010, will shrink a further 3.8 percent this year, according to a report from EU and IMF inspectors in June. The nation’s debt load will peak at 166 percent of GDP next year, and is already the biggest in the euro-region’s history.
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