11/16/2011 07:23 EST | Updated 01/16/2012 05:12 EST

Greece's new PM faces confidence vote, as Athens launches debt writedown talks

ATHENS, Greece - Greece's new coalition government easily won a confidence vote in parliament, backing a pledge by Prime Minister Lucas Papademos to speed up long-term reforms and secure a massive new bailout deal involving banks and rescue creditors.

The government formed last week by the majority Socialists, rival conservatives and a small right-wing nationalist party won Wednesday's vote with 255 in favour and only 38 against in the 300-member parliament.

Papademos' government, which is temporary and only expected to be in power for a few months, is tasked with pushing through the €130 billion new debt deal agreed on last month and securing a vital installment of Greece's initial bailout loan, without which the country faces a potentially catastrophic default in a month's time.

He must also oversee the implementation of a raft of austerity measures already passed, including increased taxes and the suspension of about 30,000 civil servants on partial pay.

Papademos' coalition won support from the vast majority of deputies in both main parties and the right-wing party, as well as from a number of independents. All left-wing and communist party deputies voted against.

Greece is at the heart of a vicious debt crisis that has brought it to the brink of bankruptcy. Since May 2010, the country has survived on installments from a €110 billion ($150 billion) rescue loan package from its European partners and the International Monetary Fund. When it became obvious that even that sum was not enough, European leaders struck a new bailout deal on Oct. 26, worth a total €130 billion ($176 billion). In addition, it was agreed that banks and other private holders of Greek bonds would write off 50 per cent of their Greek debt holdings.

In return for the bailout loans, the previous government had to force through a deeply resented austerity program, which has seen repeated tax hikes, and cuts in pensions and civil service salaries.

Figures released by the Finance Ministry on Wednesday underlined the massive task Papademos' coalition faces. The country's state budget deficit widened by more than 11 per cent in the first 10 months of the year compared to the same period in 2010, reaching €20.1 billion compared to €18 billion last year.

The increasing budget gap came despite extra tax measures imposed this year, with the ministry attributing it mainly to the deeper than initially projected recession. The figures are on a cash basis and not those used as the benchmark to assess the country's economic policy program as they do not include spending such as social security and local administration.

Speaking just before the vote, Papademos called for unity in order to ensure Greece remains within the eurozone, and stressed that his brief government's task is "disproportionally large" compared to the time it would be in power. He also said that "there are no magic solutions." Elections have been tentatively set for Feb. 19.

"We must fight the battle with confidence in our strength, with decisiveness, with unity. The path to collision, especially in today's critical circumstances, doesn't help solve our problems," Papademos said shortly before the confidence vote.

"It is a difficult path. And that is why I appeal not only to those of you who will give a vote of confidence to the unity government, but also to those of you who won't. ... Be critical of the government, but do not reject the joint effort," he said.

The votes of support, the new prime minister said, "represent a responsible decision to avoid placing our country's membership of the eurozone in danger."

Papademos, a former vice-president of the European Central Bank, was meeting Wednesday evening with Charles Dallara of the International Institute of Finance, a global bank lobbying group that is negotiating Greece's voluntary debt reduction.

Dallara, who was on a brief visit to Athens, also held talks with Finance Minister Evangelos Venizelos during which the two discussed the debt reduction deal struck last month in Brussels. Greek officials were to negotiate by telephone with bankers in Paris and Frankfurt on the deal.

"I come in a hopeful frame of mind, hoping we can move to implement the decisions taken in Brussels," Dallara told The Associated Press earlier in the day. "I think we can all be hopeful with the new government in Athens."

The government's most pressing task now is to secure the release of the €8 billion loan installment from its initial bailout. The disbursement has been delayed by the political turmoil in Greece that led to the resignation of Papademos' predecessor, George Papandreou. the crisis was sparked by Papandreou's sudden — and later withdrawn — plan to put the new debt deal to a referendum, a move which infuriated European leaders.

The country's creditors now insist the money can only be released after Greece formally accepts the new bailout and Greece's main party leaders sign commitments to honour it — a demand that conservative leader Antonis Samaras has rejected.

Samaras told parliament the three coalition partner leaders have already committed themselves in writing to back Papademos and that to seek additional pledges is excessive.

"Not only do we back the transitional government, but we played a leading role in its formation," he said, adding that Papademos has a specific mandate to implement the Oct. 26 deal.


Associated Press writers Derek Gatopoulos and Nicholas Paphitis in Athens contributed.