06/21/2011 04:41 EDT | Updated 08/21/2011 05:12 EDT

Greece Confidence Vote: Prime Minister George Papandreou Survives


CBC -- The embattled government of Greek Prime Minister George Papandreou survived a crucial confidence vote Tuesday.

Parliament approved the new cabinet he formed to help pass the unpopular austerity measures with 155 votes out of 300. The government needed a simple majority of 151 for passage.

Failure to get that approval would have thrown into question whether Greece could pass a new austerity bill by the end of the month as demanded by international creditors before the country could get the next instalment of its bailout — funds the country needs to avoid default.

Thousands of anti-austerity protesters massed outside parliament to hear the outcome of the vote. Many booed and chanted "Thieves" as the vote was taken. Riot police stood by.

Even more seriously, a defeat would have prompted selling in the shares in the foreign banks exposed to Greek debt. Because it isn't clear exactly how much exposure those banks have, the markets were expected to sell first and ask questions later.

Global markets have been volatile in recent weeks on worries that Greece would default on its huge debts and stoke fears over the public finances of other euro countries, such as Portugal, Ireland and Spain.

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 defence minister and his main rival from within the party, to the post.

This all happened against the backdrop of violent street protests through much of Athens and elsewhere in the country.

A default by Greece, which finds itself unable to pay 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.

Even with the confidence hurdle cleared, getting parliament to back the new austerity package is far from a sure thing for Papandreou.


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 international bailout in mid-July — just in time to avoid a default.

If parliament approves the €28 billion ($39 billion Cdn) worth of austerity measures, on top of an unpopular €50 billion privatization program, then eurozone finance ministers will meet on July 3 to approve the next €12 billion installment of Greece's bailout loans.

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.

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.

With files from The Associated Press