Greek lawmakers back reforms, clear way for more aid
ATHENS/BERLIN (Reuters) - The Greek parliament approved detailed austerity and privatization bills on Thursday in a crucial vote to secure emergency funds and avert imminent bankruptcy, but longer-term dangers still lurk.
Lawmakers voted 155-136 for the implementation laws a day after backing a deeply unpopular 28 billion euro, five-year austerity plan, removing the last obstacle to the next slice of aid from the European Union and the International Monetary Fund.
The euro and world stocks rose to three-week highs after the vote as investors expressed relief that the specter of a sudden summer default had been avoided, despite fierce public opposition to deeper pay and spending cuts.
The European Union's top two officials, Herman van Rompuy and Jose Manuel Barroso, hailed the vote as an "act of national responsibility" and said conditions were now in place to disburse the urgently needed next tranche of loans to Greece.
Euro zone finance ministers will take the decision at a meeting on Sunday. The IMF is set to follow suit on July 5.
That 12 billion euro loan will prevent Greece defaulting in mid-July or August and shift the focus to a second assistance package likely to be about the same size as last year's 110 billion euro bailout.
The IMF said on it hoped for a "positive resolution" in talks with European countries to ensure the Greek economic program is fully funded.
An IMF spokeswoman, Caroline Atkinson, said in a statement the Greek Parliament's final approval of austerity plan would "bolster Greece's efforts to implement its economic reform program."
Credit insurance markets are still pricing in a nearly 80 percent chance of Greece defaulting on its 340 billion euro debt mountain -- 150 percent of annual economic output -- within five years.
Greek bond yields fell only slightly and there was a widespread sense that relief may be very short-lived.
"The Greek situation has been kicked down the road for a couple of weeks and the immediate prospect of a default is off the agenda for now," said Michael Hewson of CMC Markets.
"Getting this vote through is one thing, but all it is doing is delaying the inevitable. ... Given what is going on on the streets of Athens, you have to question whether Greece can implement these measures."
In Berlin, Finance Minister Wolfgang Schaeuble said he had reached agreement with German banks on private sector participation in a new assistance program, based on a French plan for a voluntary debt rollover.
German institutions were likely to contribute 3.2 billion euros through this scheme -- barely 1/10th of the sum sought from private bondholders. French banks and insurers have the biggest exposure among foreign holders of Greek debt. Greek banks have little choice but to roll over their own holdings.
Prime Minister George Papandreou's socialist government may find it hard to enforce tax increases and state asset sales against massive public resistance, while a violent fringe always present in Greek politics has burst to the fore.
Vasso Papandreou, a former European Commissioner and member of the prime minister's PASOK party who is not related to him, told parliament she would vote for the laws as a patriotic duty although she feared the economy would deteriorate as a result.
"Germany is preparing the ground for our official bankruptcy as soon as this can happen without cost to the German banks," she said, venting a feeling widely shared among Greeks, who say they are suffering to save European bankers.
Rioters armed with stones and clubs fought several hours of running battles with police firing huge clouds of teargas in central Athens until the early hours of Thursday morning, leaving gutted shop-fronts, shattered windows and a field of debris.
"The problem for Papandreou is not in Parliament," said Costas Panagopoulos, head of ALCO pollsters. "It is what is happening outside Parliament: not in Syntagma Square, which is just a few hundred protesters, but with the whole of Greece's 11 million people."
Papandreou on Thursday asked the EU for help in drafting a recovery plan for the Greek economy. This would mainly include speeding up the disbursement of EU regional policy funds already earmarked for Greece, as well as suspending until 2013 all Greek government contributions to EU co-financed projects.
"Since our proposals do not imply an increase of the total sum of funding for a country and have the unanimous political support of the (EU) member states, they could be implemented quite soon," Papandreou said in a letter to Barroso, president of the European Commission, the EU's executive arm.
North European creditor countries, led by chief paymaster Germany, are insisting that private sector bondholders must share the cost of any further rescue, so intensive talks are under way on a "voluntary" rollover of maturing Greek debt.
European Central Bank President Jean-Claude Trichet, who has repeatedly warned the EU against triggering a credit event or downgrade of Greek debt to default, took a cautious line on the French proposal in testimony in the European Parliament.
"At this stage we have not yet (got) a position... we are very alert but I cannot give you a precise judgment on what is going on. There are several concepts being examined," he said.
Three banking sources told Reuters on Wednesday that politicians and bankers were confident that implementing the French plan would not trigger a payout of credit insurance or a default that would inflict losses on banks.
Banks had received positive signals from ratings agencies that they would not call the rollover plan a default, the sources said.
But officials cautioned that many details of the plan, including whether there would be any official guarantee, remained to be negotiated.
Many investors and economists still expect Greece to default in the medium term, and one influential international official suggested on Thursday that might be better for Athens.
"The current state of affairs where all the Greek taxpayers' money goes to the creditors cannot continue," said Angel Gurria, head of the Organization for Economic Cooperation and Development, a rich nations' intergovernmental think-tank.
"Greece must be enabled to have a policy that really allows work on the economy's recovery. This is also best for the creditors," Gurria told Dutch daily Het Financieele Dagblad. He did not rule out a "haircut" for Greek debt holders.
As life returned to normal in Athens after a night of violence, market concerns shifted from the danger of an immediate disorderly default for the first time in the euro zone to the medium-term prospect of a Greek debt restructuring.
"There's still implementation risk over the next few months but for now the default risk has been taken off the table," said Lloyds Bank strategist Eric Wand.
He forecast renewed pressure on the bonds of weaker euro zone countries on the edges of the single currency area after a temporary respite.
"There should be a brief hiatus in the periphery-bashing we've had in the last few weeks, but there are other problems."
Those included the prospect of early Spanish elections and squabbling within Italy's center-right coalition as the country faces a credit rating downgrade.