Parliament to OK austerity plan tied to financial aid

ATHENS, Greece - Greece's government will approve a new austerity package on Wednesday after it survived a confidence vote that was a large hurdle in a battle to avert the eurozone's first sovereign debt default.

Prime Minister George Papandreou's reshuffled cabinet aims to get parliamentary approval for a package of spending cuts, tax hikes and state asset sales by June 28 and implement it by July 3. Doing so will allow the country to secure 12 billion euros ($17 billion) in aid needed to avoid a bankruptcy.

The vote follows a European ultimatum linking the release of the next installment of a 110-billion-euro aid package from the European Union and International Monetary Fund to the five-year austerity plan.

Without the loans, Athens will plunge into default next month, sending shock waves through the global financial system.

The euro rose on hopes that the immediate threat of market chaos can be avoided. But the gains were short-lived as traders remained worried about whether the will exists to adopt harsh austerity measures against fierce public resistance and doubts about Greece's ability to reduce its debt burden without some form of restructuring.

The yield on Greek government bonds tightened slightly against benchmark German Bunds. The two-year bond yield dropped 28 basis points, while Greek banking stocks opened flat after showing strong gains on Tuesday.

Brief scuffles between police and protesters followed the late night vote, but the streets of Athens were calm on Wednesday. Traffic ran normally through Syntagma Square, where 20,000 demonstrators besieged parliament on Tuesday night.

The government won the late night confidence motion by 155 votes to 143 after all of the deputies from Papandreou's Socialist Party voted solidly with the government.

But with unions bristling for a fight and much of the public outraged by new austerity measures, adopting reforms will be difficult as Greece struggles with its worst recession in 37 years.

"Within the parliament there is no problem at all, the real problem is in society," said Costas Panagopoulos of pollster ALCO.

Reuters