Greek Prime Minister Faces Tough Battle Passing Austerity Measures

ATHENS, Greece -- One vote down, a tougher one ahead: The Greek prime minister won a confidence vote Wednesday but immediately launched into his next political battle -- getting new austerity measures passed by parliament to avoid a national default.

Greece's international creditors are demanding that Prime Minister George Papandreou get approval for $40.24 billion in budget cuts and new taxes and for a $72 billion sell-off of government assists by the end of the month. Only then will they hand over $17 billion in bailout funds that Greece needs to avoid bankruptcy in mid-July.

A default could drag down Greek and European banks, endanger the finances of other weak eurozone countries such as Portugal, Ireland and Spain, and spark financial uncertainty across world markets.

All 155 lawmakers from Papandreou's Socialist party voted to back their leader in the 300-seat parliament early Wednesday, eliminating the chance of early elections and shoring up confidence in the markets. As they voted, several thousand protesters outside Parliament chanted "Thieves! thieves!" and shone green laser lights at the building and the riot police protecting it.

"I understand the anger, the fear, and the question whether we will make it," Papandreou said. "My answer is that we have been making it every day for the last 20 months, with difficulties and mistakes, with a price to pay and with sacrifices but we are succeeding."

After the vote, the euro remained buoyed, the Athens stock index rose 1.5 percent and the Greek bond yields dropped for a second day running.

But Papandreou's struggles are far from over -- he still needs to convince several of his own Socialist lawmakers to support the austerity measures in the next vote on June 28. At least one deputy, Alexandros Athanasiades, said Wednesday he would vote against the measures due to objections over selling off state assets.

Papandreou was meeting party lawmakers from his party later Wednesday to begin shoring up support.

Greece is being kept financially afloat by a $157 billion package of bailout loans granted by other eurozone countries and the International Monetary Fund last year, and has implemented strict austerity measures in return, cutting public sector salaries and pensions, increasing taxes and overhauling its welfare system.

But the country has struggled to meet it targets, missing many, and is now in negotiations for a second bailout, which Papandreou has said will be roughly the same size as the first.

Many financial experts believe that despite his best efforts, the task is too great and Greece is heading for a default. If Papandreou does not get the new austerity measures passed, the 17-nation eurozone would have to hold emergency talks and would come under enormous pressure to find a new solution for the debt crisis that threatens all of them.

In Berlin, German Chancellor Angela Merkel warned Wednesday that a full-scale restructuring of Greek debt would have "completely uncontrollable"consequences on the financial markets.

Merkel said imposing a so-called haircut on Greek debt -- reducing the amount to be repaid -- would not only endanger banks and other creditors who hold Greek bonds, but also institutions that sold insurance policies against a default.

"Nobody around the globe knows exactly who holds those papers, who will have to pay how much," she said.

The French government hailed the Greek parliament's vote of confidence, saying it was "a very important step" toward more European aid for Greece.

"We will not accept any payment incident or credit default," government spokesman Francois Baroin said Wednesday

In Athens, about 100 members of the powerful GENOP electricity workers union occupied the Transport Ministry on Wednesday to protest plans to privatize their company. Workers began rolling 48-hour strikes on Monday causing brief, country-wide blackouts.

"Our struggle is to protect the last big public business of the country," said union President Nikos Fotopoulos. "Electrical energy is a public good and should not be played with."

Officials from the IMF, European Commission and European Central Bank who have been overseeing Greece's reforms were in Athens to discuss the new austerity measures.

Nicola Mai with JP Morgan Chase bank said Papandreou will likely succeed in passing the austerity package, but says its questionable whether he can successfully implement it over time.

Mai said strong public opposition and weakness in Greece's economy will make it difficult for Papandreou to push through the necessary structural reforms, meet fiscal targets and sell state assets.

"We don't have much confidence that Greece will meet its targets, making a formal extension of debt maturities our central scenario for next year," said Mai. "Still, it is possible that policymakers will once again choose the path of least resistance, and continue to fund Greece, even in the face of a disappointing adjustment."