Greek parliament approves crucial financial measures
Howard Schneider
The largely party-line vote gave Prime Minister George Papandreou a critical victory in the midst of crisis talks with other European leaders and the International Monetary Fund.
Approval came despite a two-day nationwide strike and continued violent demonstrations. Police and protesters clashed in Athens on Wednesday as the nation’s lawmakers debated the legislation. The fighting continued well after the vote, with smoke billowing from the Finance Ministry from an apparent fire and clouds of tear gas drifting through the streets near Athens’ main Syntagma Square.
Markets reacted positively to the bill’s passage. Major European exchanges were up over 1 percent. New York exchanges were also higher, with the Dow Jones Industrial Average up about 0.5 percent.
The vote, on a $40-billion package of tax increases and spending cuts, was hailed by European officials as an important step in their ongoing talks with Greece’s political leaders and the IMF over how to stabilize the country’s finances. Without an approval, European leaders and the IMF said they would not release loans scheduled for Greece under a rescue program negotiated last year.
The loans are needed in order for Greece to pay its bills, including billions of dollars due to bondholders in coming weeks. The prospect of a Greek default has kept markets on edge and has been cited by the IMF and the Obama administration as one of the chief risks to the world economy.
“This was a vote of national responsibility,” European Council president Herman Van Rompuy and European Commission president José Manuel Barroso said in a joint statement. “The country has taken an important step forward along the necessary path of fiscal consolidation and growth-enhancing structural reform. But it has also taken a vital step back – from the very grave scenario of default.”
The austerity measures proposed by Papandreou — including taxes on lower income wage earners and a nationwide emergency levy — sparked outrage among a populace living through a third year of recession. Another key parliamentary session is scheduled for Thursday, when further legislation will lay out in detail how a series of economic policy and other changes will be implemented.
Papandreou’s governing Panhellenic Socialist Movement (PASOK) holds a slim majority, with 155 seats in Greece’s 300-member legislative body. He survived a vote of no confidence last week, a positive sign that his colleagues would back him despite the unpopularity of the austerity measures among unions, public sector employees and other party faithful.
Along with the package of budget and tax measures, the parliament must approve a $70 billion privatization program that will see the government sell off public power and transportation companies and other businesses that have been a major source of political patronage for PASOK and other political movements.
Tens of thousands of protesters have jammed Syntagma Square during the past two days, with unions joining anarchists, student groups, pensioners and others who have kept a steady protest presence to oppose the measures. A nationwide strike has disrupted major services.
Considered by the IMF and European officials to be a necessary step to cure years of overspending by the Greek government, the austerity plan has arguably deepened the country’s recession and driven unemployment beyond 16 percent, higher than the IMF expected.
Opponents argue that the plan is being imposed largely to protect German, French and other European banks that hold Greek bonds and don’t want to face losses if the government defaults.
The upcoming $17 billion loan from the IMF and Greece’s European neighbors is the latest tranche in a longer-term, $160 billion emergency program approved for the country last year, when it also faced a possible default.
That program was intended to restore the confidence of private investors, and allow the country to begin borrowing money on its own again as early as next year.
It didn’t work, as the economy continued contracting, and the Greek government stumbled in implementing the broad set of reforms promised to the IMF and Europe. Many of those measures, along with additional cuts and economic policy changes, have been rolled into the program lawmakers approved on Wednesday.
Along with the actions needed to release the upcoming payment, European, IMF and Greek officials are renegotiating that longer-term effort, perhaps to include additional loans. As part of those talks, they are asking banks and other private bondholders to help — possibly by maintaining their investments in Greek bonds, rather than demanding the cash as those bonds come due.
June 29, 2011