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Greek PM faces parliament as EU deadline looms on austerity

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Bloomberg Athens/ London
Last Updated : Jan 20 2013 | 2:17 AM IST

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 euro 6.6 billion ($9.4 billion) of maturing bonds in August. The week, beginning with talks over creditors’ role and ending with yesterday’s meeting of finance ministers meet in Brussels, will be marked by a 48-hour general strike in Greece.

With 155 votes in the 300-seat legislature, Papandreou needs to unite his lawmakers in two votes on a euro 78-billion package of budget cuts and asset sales before Greece can tap a fifth loan payment from last year’s euro 110-billion rescue. Ruling-party lawmaker Thomas Robopoulos said he may vote against the government, joining Alexandros Athanasiadis, who opposes plans to sell a stake in Public Power Corp SA, 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.”

YIELD CLIMBS
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. Today, the yield on Greece’s 10-year notes rose 3 basis points to 16.81 per cent at 10.05 am in Athens.

“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.”

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Papandreou has spent the past 15 days trying, and failing, to muster opposition backing 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 euro 5.6 billion of additional budget measures, including a 5 per cent levy on lawmakers’ wages. On June 24, he won a pledge for a second bailout from European Union leaders provided he can deliver domestic support for the retrenchment.

DEBATE BEGINS
The first session of the three-day debate was scheduled to begin at 6 pm 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 per cent 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. Grilli is also the head of the EU’s Economic and Financial Committee, which prepares the work of EU finance ministers.

CHINESE SUPPORT
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 his socialist Pasok party, are holding their fourth general strike. Beginning at midnight, the 48-hour strike will affect government services, flights and public transport.

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First Published: Jun 28 2011 | 12:54 AM IST

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