The Greek Prime Minister Giorgos Papandreou won a vote of confidence in parliament in the early hours of Wednesday, paving the way for legislation on new fiscal austerity measures to be voted on next Tuesday even as the opposition pledged to fight the package.
Greece needs to receive €12bn in loans from the EU and the IMF by mid-July to avert a default on its sovereign debt.
A new 120 billion euro bankster bailout for Greece will cost each household in the eurozone 1,450 euros by 2014, according to a report by Open Europe.
Mohamed El-Erian, chief executive of Pimco said that a Greek default would be postponed by the bailout but was inevitable given Greece’s debt burden.
A policy recommendation to introduce an insolvency mechanism for indebted eurozone nations was buried by the German government last autumn, opening the door to limitless bailouts to meet the bank interest payments on government debt.
All 155 lawmakers belonging to Papandreou’s Pasok party backed the embattled prime minister after votes had to be given individually and publicly at midnight Tuesday, giving the government only a slight majority in the 300 member house.
But the opposition party New Democracy has already said it will not back any more fiscal austerity, increasing the chances of fresh elections.
New Democracy leader Antonis Samaris told the Financial Times today that the fiscal austerity measures would drain the economy of yet more liquidity and exacerbate the recession – and national debt.
“They are asking me to support the same kind of medicine for someone who is dying from that medicine. I will not do it,” he said.
“Mr Samaras said his main objection to the government’s policies was that they were squeezing demand out of the economy by increasing the tax burden while Greece was still in deep recession. This was demoralising the public, already suffering from high unemployment and wage cuts, and was causing businesses to shut down, evade taxes or flee the country.”
“Liquidity is the top, top, top problem of the economy. Imagine what happens in the real economy when there is no private spending, no government spending and no foreign direct investment. Everything is closing down. There is a brain drain, educated people are leaving the country,” Samaras said.
Even if Papandreou manages to push through legislation for a €28bn austerity plan next Tuesday, it seems unlikely that the government can implement measures through given the growing opposition among the people.
Thousands of demonstrators who have been gathering outside parliament have said they will continue their protests.
Live stream of the protests on Syntagma square yesterday night showed thousands of people demonstrating peacefully in front of the parliament as well as a heated debate between politicians inside the building.
Unions have also pledged to block the privatisations, adding to the political volatility.
The Greek government plans to form a privatisation agency to administer the privatisation of €50bn of state assets.
It is not clear if Pasok will pass the fiscal austerity measures on Tuesday even if Papandreou won the vote of confidence after reshuffling the cabinet to quell a rebellion.