Greek Prime Minister George Papandreou faces his second survival test in a week as lawmakers vote on a five-year austerity plan that must pass for the cash- strapped nation to secure more international aid.
Failure to pass Papandreou’s plan 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. The week begins with governments and banks jostling over how private investors can support Greece and will end with another round of crisis talks as Europe’s finance ministers meet in Brussels.
With 155 votes in the 300-seat legislature, Papandreou needs to unite his lawmakers in two votes this week on a 78 billion-euro package of cost-cuts and asset sales before Greece can tap a fifth loan payment from last year’s 110 billion-euro European Union-led rescue. Ruling-party lawmaker Thomas Robopoulos said June 24 he may vote against the government, joining Alexandros Athanasiadis, who opposes plans to sell a stake in Public Power Corp SA (PPC), the former electricity monopoly.
“There is a deep awareness of the seriousness of the situation,” said Gikas Hardouvelis, chief economist at EFG Eurobank Ergasias SA, Greece’s second-biggest bank. “The program will pass as the government members of parliament are lined up behind the prime minister. Political uncertainty is out.”
Concern the sovereign debt crisis has longer to run after almost two years of attempts to stem the contagion is unnerving investors who last week pushed the euro to a record low against the Swiss franc. German bonds rose for a third consecutive week and European stocks fell for an eighth, the longest stretch of losses since 1998.
Verge of Collapse
“We are on the verge of an economic collapse which starts, let’s say, in Greece, but it could easily spread,” billionaire investor George Soros said yesterday in Vienna. “The financial system remains extremely vulnerable.”
Papandreou has spent the past 15 days trying and failing to muster opposition support for the package, while keeping his own troops 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 provided he can deliver domestic support for the retrenchment.
The first session of the three-day debate is scheduled to begin at 6 p.m. today. A vote is expected on June 29. An implementation law, which provides the technical details of how the five-year plan will be applied is also due to be discussed and approved this week by the deadline of June 30.
As Greek government officials say they may not have money past mid-July to pay wages and pensions, the country’s travails are again taking front stage in the global economy.
German Chancellor Angela Merkel’s effort to involve banks in aiding the nation is running into difficulty as her Finance Ministry rejects calls from private investors for incentives to encourage their participation in a plan to roll over maturing Greek debt. The French Treasury and banks led by BNP Paribas SA will propose this week that bondholders re-invest 70 percent of their Greek debt maturing in the next three years, three people familiar with the plan said yesterday.
Charles Dallara, managing director of the Institute of International Finance, will hold talks with banks in Rome today led by Vittorio Grilli, director general of the Italian Treasury, IIF spokesman Frank Vogl said.
Europe won a vote of confidence from Chinese Premier Wen Jiabao, who said during a weekend trip to the continent that China will remain “a long term investor in Europe’s sovereign debt market.”
Ramping up the pressure on Papandreou and his lawmakers, unions, traditional allies of the socialist Pasok party, are holding their fourth general strike. Beginning at midnight, the 48-hour strike will affect government services, flights and public transport. For the past week, workers at Public Power have held rolling 48-hour strikes, leading to power cuts around the country.
“Passage of the legislation may be the comparatively easy part,” said Jens Bastian, a visiting economist at Oxford University, in England, who believes Papandreou has the support to win the votes this week and may also receive backing from some opposition lawmakers as well. “Implementation will be severely challenged by different constituencies and thus risks being delayed or sabotaged.”
Implementing more austerity measures threatens to deepen a three-year recession and complicate efforts to boost government revenue. The EU forecasts Greek gross domestic product will shrink 3.8 percent this year, after contracting 4.5 percent last year, while the nation’s debt load will reach about 160 percent of GDP, the biggest in the euro-region’s history.
Evangelos Venizelos, named finance minister by Papandreou on June 17, said he’d speak to the two lawmakers threatening to withhold their support. On June 23 he met with unions at the power company, which has prompted the opposition of lawmaker Athanasiadis, whose Komotini, northern Greek constituency counts Public Power as one of its biggest employers.
“I cannot see why anyone would have supported Papandreou last Tuesday and then vote against the package” this week, said David Mackie, London-based chief European economist at JPMorgan Chase & Co.
Apart from state asset sales to reduce debt 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.
Papandreou’s Pasok party now trails New Democracy, the biggest opposition bloc, with the latest opinion poll giving Pasok 20 percent of voter preferences to 21.4 percent for New Democracy. ND leader Antonis Samaras has defied calls from EU leaders to support the package. He says he backs the goals of the plan, but that the package should be renegotiated to drop further tax increases in favour of measures to boost growth.
“Samaras is trying to appear playing hardball with the Papandreou government in Athens but he risks holding the short straw at the European level if he insists on continued intransigence,” said Bastian.
Papandreou said in Brussels on June 24 that he believed his lawmakers knew what was at stake.
“We all feel the great sense of responsibility we have first of all to the Greek people and continuing on a difficult path, but I would say a path which is much better than the alternative path of defaulting,” he said.