Greek Cabinet Vote Looms
Prime Minister George Papandreou's cabinet faces a confidence vote late on Tuesday, the first of three tests the Greek government must survive to avert the euro zone's first sovereign debt default.
The vote follows a euro zone ultimatum that the debt-choked Mediterranean state must approve a new five-year package of painful economic reforms in two weeks or miss out on a 12-billion-euro aid tranche that it needs to avoid bankruptcy.
While parliament debates the confidence vote against a backdrop of deep public anger over the pain of the austerity measures, IMF and European inspectors arrived in Athens to discuss changes requested by Greece to the reform package.
Unions and grassroots activists will protest at parliament ahead of the vote, building on more than three weeks of demonstrations that erupted into violence last week and split the ruling PASOK party.
Papandreou stifled dissent by replacing some unpopular government figures with critics of the plan. Now, with 155 of the chamber's 300 seats, the party is expected to win the confidence motion in a vote due around 2100 GMT (5 p.m. ET) but which could slip into the early hours of Wednesday.
Assuming it survives the vote, the government must hammer through the five-year package of 28 billion euro ($39.84 billion) in tax hikes and spending cuts by June 28.
It must then push through laws implementing the package -- potentially more difficult as it will tackle individual privatizations, tax measures and spending cuts -- in time for an extraordinary meeting of euro zone finance ministers on July 3.
"Tonight is just the beginning of what is still a long and protracted process," said Gavin Friend, a strategist at National Australia Bank.
"We've got to get through the parliamentary approval of June 28th, and an even tougher act to follow on July 3rd, which is how are they going to meet these targets. There are still a lot of hoops to jump through."
Pundits say it is very unlikely the cabinet will fail to muster all its parliamentarians to pass the confidence vote, as this would lead to political chaos and early elections which PASOK would likely lose.
It would also push the country even closer to default, escalating the risk of destabilizing global financial markets.
The euro inched up in choppy trading on Tuesday on hopes the squabbling policymakers would come up with a solution to avoid a Greek default.
Greek state power utility PPC continued a 48-hour strike started at midnight on Sunday in protest of government plans to sell the company. The strike has resulted in rolling power outages on the outskirts of Athens and elsewhere.
The euro zone's effective ultimatum was intended to ratchet up pressure on Greek lawmakers to both support the new cabinet and push through the reforms.
Having already missed targets agreed in its first, year-old bailout, the package is required if Athens wants to both receive the next tranche of those funds and secure a second bailout worth an estimated 120 billion euros.
The new mid-term plan envisions raising 50 billion euros by selling off state firms and includes 6.5 billion in 2011 fiscal consolidation, almost doubling existing measures that have helped extend a deep recession into its third year.
Most analysts expect the package to pass, but many are skeptical that Greece will be able to reduce its vast sovereign debt pile of 340 billion euros, or more than 30,000 euros per head of its 11.3 million population.
The inspectors' visit follows a request by newly appointed Finance Minister Evangelos Venizelos for changes to the mid-term plan. Greece's government has said the lenders' inspectors would discuss changes "at a technical level."
The government has not given any details, although Venizelos's predecessor had proposed dropping a tax hike on heating oil and raising the tax-free threshold on property.
Citing unnamed sources, daily Eleftherotypia reported on Tuesday the team may discuss income taxes and a levy on soft drinks, as well as the planned sale of majority stakes in Greek utilities PPC, EYDAP and Thessaloniki Water.
Those sales, extremely contentious among the tens of thousands of workers at the companies, have drawn criticism from some ruling party deputies but are a crucial part of the EU and IMF mandated push to raise budget revenues.
Euro zone officials have told Reuters the plan for the new bailout, meant to extend Greece's year-old 110-billion-euro deal and fund it into late 2014, would feature up to 60 billion euros of fresh official loans, 30 billion euros from the private sector and 30 billion euros from privatizations.
Despite deep concern about contagion from Greece infecting bigger euro zone peripheral economies like Spain and Italy, some analysts say too much is at stake to allow this to happen.
"In the big scheme of things, market players are starting to believe that euro zone policymakers, especially German policymakers, will try to avoid a hard landing in Greece," said Makoto Noji, senior strategist at SMBC Nikko Securities.