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Athens - Despite violent protests, Greece's parliament looked increasingly likely on Wednesday to
approve unpopular austerity measures to
secure international funds to prevent the eurozone's first sovereign default.
But with the country on the brink of bankruptcy, it remains
uncertain whether a weakened Socialist government can push through laws to
implement structural reforms and privatisations in a second series of votes on
Thursday, and then stick to a tight European Union/International Monetary
Fund-imposed schedule for implementation.
Many economists and investors still expect Greece to default
in the medium term.
Prospects of a "yes" vote on the five-year austerity plan rose when one of three rebels in Prime Minister George Papandreou's governing PASOK party changed heart and said he would vote for the measures out of a sense of national duty.
"I have made the decision to vote for the plan because
national interests are more important than our own dignity," Thomas
Robopoulos, the deputy, told Reuters.
PASOK holds 155 seats in the 300-member chamber and may also
be helped in the vote by a small centre-right splinter group of five deputies
led by former foreign minister Dora Bakoyanis.
Bakoyanis, who has been intensely lobbied by European Union
officials, said she would abstain and the other four members were free to vote
according to their conscience.
Rising expectations of a positive vote and progress in talks
between banks and eurozone governments on a rollover of privately held Greek
debt lifted the euro and global stocks.
European shares gained for a third straight day on Wednesday, led by bank stocks, as investors bet parliament would pass the plan.
"A lot of work has been done behind the scenes to
ensure the proposals get passed, and that optimism is getting reflected in the
share prices," said Graham Bishop, equity strategist at RBS in London.
"The passage of the austerity plan will certainly help,
but that's not to say there are not any more hurdles. The next hurdle will be
the implementation of the measures, and the government will be closely watched
on that," he said.
Smashed shop windows
Sporadic clashes between several hundred hooded youths
throwing stones and wielding clubs and riot police firing tear gas continued
until late into the night in central Athens.
Workers cleared debris of smashed shop windows and burnt
garbage cans used as makeshift barricades around Syntagma Square, outside
parliament, where several hundred people had already gathered to hold fresh
protests on Wednesday.
Despite a threat by trade unions staging a 48-hour general
strike to prevent lawmakers entering the colonnaded parliament building, there
was no impediment to access as debate began on the austerity programme,
witnesses said.
The EU and the IMF have said Greece
must adopt the austerity plan, with €28.6bn in savings, and the implementation
measures to receive the next €12bn slice of emergency loans by mid-July.
Without them, Athens would run out of cash within weeks.
"For parliament to vote against this package would be a
crime," Greece's central bank governor, George Provopoulos, was quoted as
saying in the Financial Times on Wednesday. "The country would be voting
for its suicide."
Risk premiums on lower-rated eurozone government debt fell
on news that German banks had agreed in principle to use a French proposal as a
basis for negotiating private-sector participation in a Greek financial rescue.
No Plan B
The EU and IMF bailed out Greece with a €110bn deal in May
last year, and later jumped in to keep Ireland and Portugal afloat as the
eurozone reeled from high government debt in the wake of the global financial
crisis.
The EU's top economic official, Olli Rehn, stressed that any
further financial assistance for Greece hinged on parliament adopting the
austerity package.
"The only way to avoid immediate default is for
parliament to endorse the revised economic programme ... They must be approved
if the next tranche of financial assistance is to be released," he said in
a statement.
"There is no Plan B to avoid default," Rehn said, dismissing widespread reports that Brussels was working on a fallback plan to keep Greece afloat.
Newly appointed IMF chief Christine Lagarde called on Greek lawmakers to join together in supporting the austerity plan, although Greece's Conservative opposition leader Antonis Samaras reiterated his objections.
"This policy is wrong; it has exhausted the Greek
people and Greek society," Samaras told parliament. "If we perpetuate
this mistaken policy we will only make things worse, both for Greece and for
Europe."
If Greece approves the legislation, eurozone finance
ministers meeting in Brussels on Sunday are likely to agree to release the next
aid tranche, with the IMF following on July 5.
Attention will then switch to putting together a second and
longer-term rescue package for Greece of about the same magnitude as the
initial €110bn bailout.
The new programme would involve some €30bn in private sector
participation via a "voluntary" rollover of maturing debt, a similar
sum from privatisation revenues and an expected €55bn in new
official funding.
Eurozone banks and insurers are considering a French plan
outlined by President Nicolas Sarkozy on Monday, under which private bondholders
would reinvest half of the proceeds of maturing Greek debt in new 30-year bonds
paying 5.5% interest plus a bonus linked to Greece's gross domestic product growth rate.
Of the other half, 30% would be paid in cash and 20% would
be invested in a "guarantee fund" of zero-coupon AAA securities with
deferred interest that might be issued by the eurozone rescue fund, officials
and banking sources said.
France had the largest foreign private sector exposure to Greece (more than $56bn) followed by Germany at end 2010, data from the Bank for International Settements shows.
Two sources close to the negotiations told Reuters that German banks had agreed to use the "French model" as a basis for talks with the German finance ministry on Thursday. German Deputy Finance Minister Joerg Asmussen also called the French plan a good basis for discussions.
