Greece's embattled prime minister has survived the first of a trio of tests that could sink the Greek economy and lay waste to Europe's single currency by winning a parliamentary vote of confidence in his reshuffled government. George Papandreou must now try to drive through a package of savage spending cuts and national assets sales in order to secure a new EU bailout.
With the complex effort to stave off a Greek sovereign default moving towards a climax and anti-government and anti-EU protesters laying siege to central Athens, Papandreou won the vote by 155-143 in the 300-seat chamber. Brussels and other EU capitals anxiously watched the drama in Athens prior to a crucial summit of EU leaders.
"Good news for Greece and for the EU as a whole," said Jose Manuel Barroso, the president of the European commission. Papandreou's victory removed "an element of uncertainty from an already very difficult situation. His government can now focus all efforts on building support in parliament for the ambitious series of fiscal measures and privatisations."
The vote kicked off a crucial three weeks that could make or break the euro. Leaders in Brussels spoke of the worst crisis in Europe since the second world war, the International Monetary Fund (IMF) set ultimatums before the 17 countries of the single currency, and international ratings agencies classified the bailout terms for Greece as a likely default.
In order to secure an immediate €12bn lifeline and then EU agreement on a second bailout running to more than €100bn over three years, Papandreou now has to persuade parliament to back a radical programme of spending cuts, tax increases, and a mass assets sell-off by the end of next week.
The roll-call ballot took place in an electric atmosphere with Greeks from all walks of life converging on Syntagma Square. Angrily punching the air as politicians debated the country's parlous economic plight, protesters shouted: "We give a vote of no confidence." Riot police looked on and, as tensions rose, many protesters lobbed bottles of water at the parliament.
"In this country we take our democracy seriously," said Ioanna Deloudi, one of thousands of demonstrators. "And we will protest until we are blue in the face because we are not to blame for the debt that has piled up.
"Asking the little man on the street, the low-income salary earner, to endure endless austerity to solve this crisis, when not that long ago we didn't even know the problem existed because no politician ever talked about it, is totally unfair."
Some of the protesters had walked from as far as Sparta, the historic town in the southern Peloponnese, to make their voices heard. "This is about our dignity as a nation," said Kalli Kyriakopoulou. "Every week you hear of another cut when there is no guarantee that any of them will get Greece out of this debt hole. Now they want to privatise everything, sell off our nation's wealth, our monuments, our islands, our land, to solve the problem. What country would agree to that?"
If Greece fails to agree the austerity measures, the IMF will pull the plug on the latest €12bn tranche of its current €110bn bailout. Greece would be insolvent, with immense implications for European banks and the fate of the single currency.
Before the victory for the government, however, the expectation that Papandreou would prevail lifted stock markets all over the world. The FTSE 100 in London closed 81.92 points higher at 5775.31 and the FTSEurofirst 300 index of leading shares rose 1.5%, its biggest increase for two months. The Dow Jones industrial average was up more than 100 points at lunchtime in New York.
At the summit in Brussels, EU governments will be under intense pressure to seal the new three-year Greek bailout worth as much as the current rescue fund. The expectation was that leaders would agree to guarantee the new bailout, leaving the details to be hammered out by 3 July.
"We're at a critical point in the most serious crisis since the second world war," warned Olli Rehn, the European commissioner for monetary affairs.
A group of 15 leading public figures, including six former EU prime ministers, delivered a message of doom and gloom to European leaders, warning that the EU faced a future on the international sidelines.
"Europe isn't in a good place these days," said the group, all allied with the Brussels Friends of Europe thinktank. "The drive towards closer integration is losing momentum and appears in great danger of slipping backwards … European leaders risk the EU becoming a marginal player in a globalised world whose rapid change is clearly not to Europe's advantage."
Chancellor Angela Merkel of Germany, a central figure in the crisis, voiced confidence that Europe would rise to the challenge, while reiterating German demands that Greece's private creditors should volunteer to roll over the debt as part of the rescue. "We believe some burdens can be put not only on taxpayers but that banks must also participate," Merkel said. "These three components – Greece's tasks, EU solidarity and the voluntary participation of banks – are the solution."
Fitch, one of the three big international ratings agencies warned that it would view a voluntary rollover of Greek debt as a default. "Fitch would regard such a debt exchange or voluntary debt rollover as a default event and would lead to the assignment of a default rating to Greece," said Andrew Colquhoun, head of Asia-Pacific sovereign ratings with Fitch.The jury still seems to be out on this, however, with detailed arguments raging across the EU over how, when, and whether Greece would be deemed to be in default. The process of persuading the banks, insurance companies and pension funds holding Greek debt to remain exposed after redeeming their loans is also an exacting task which could take weeks without any certainty of success.
The markets and the European business elite believe that in the end Greece will need to restructure its unmanageable debt with major writedowns for its creditors. A poll of German executives yesterday showed almost 9 out of 10 believed Greece would not be able to avoid a debt restructuring.
