Greek vote clears path for further financial aid

Greece's parliament has passed a new round of austerity measures meant to avert a debt default and calm the euro zone.

The Greek parliament passed a new round of tough austerity measures yesterday, paving the way for further aid to rescue the country from the brink of default and defuse the euro-zone crisis.

Greece's fate had hinged on a vote in favour of the €28.4 billion (Dh150.04bn), five-year austerity plan, which called for deep spending cuts and higher taxes to help reduce a growing mountain of debt.

Its successful passage was a condition for further bailouts and a step seen as necessary to convince euro-zone and EU leaders more aid would solve the country's debt crisis instead of simply delaying an inevitable default.

In an address to parliament ahead of the vote, George Papandreou, the Greek prime minister, called the austerity plan a "difficult, imperative step".

The outcome of the 155-to-138 vote in favour of the measures reverberated across the single-currency bloc, with the euro weakening against the dollar and Greek bond yields dropping.

"This is an important step, but it's only part of a process," Jens Weidmann, the German Bundesbank president, said after the vote.

The next test for the embattled country comes today when another vote is scheduled to authorise implementation of the cuts as well as €50bn of state asset sales.

Its successful passage would clear the way for Evangelos Venizelos, Greece's new finance minister, to meet European leaders on Sunday about releasing the fifth tranche of €12bn from the €110bn bailout package agreed last year with the EU and IMF.

Further belt-tightening is unpopular among ordinary Greeks who will see their incomes decline as a result, and protesters and riot police assembled outside the parliament building yesterday in Athens ahead of the critical austerity vote. Protests and strikes have been rampant across Greece in recent days as its financial fortunes hung in the balance.

"We have to do anything necessary to avoid the country collapsing," Mr Papandreou told Dow Jones before the vote, adding there was "no plan B".

Mr Papandreou recently survived a vote of confidence seen as a sign the parliament would approve further austerity measures.

Finding more aid for Greece is critical given that €6.6bn of the country's debt matures in August. Without the next instalment of €12bn from the EU and IMF, the country would be insolvent. Its total debt load is expected to peak at 166 per cent of its GDP next year.

As Greece marched towards further cuts, leaders in other parts of Europe continued to weigh how to discuss plans to solve the Greek crisis and stop the threat of contagion throughout the single-currency bloc. The outcome of the sovereign debt crisis is critical, both for European countries such as Germany and France, Greece's two main creditors, and for the stability of the euro.

A spokesman for Angela Merkel, the German chancellor, called the approval of Greece's emergency measures "very good news".

Mrs Merkel, who as the leader of Europe's largest economy has played a central role in efforts to save Greece, said earlier in the day further Greek cutbacks were "necessary".

"It's in our interest for there to be a strong euro and a strong Europe," she told Dow Jones.

All eyes are now on the effect Greece's efforts to tackle its debts will have on global markets. Even in the far-flung Gulf, companies are watching how the drama unfolds as they decide on the timing of bond sales to international investors.

Majid Al Futtaim Holding, the retail giant based in Dubai, has scrapped a plan to sell bonds after starting meetings with potential investors last week, Reuters reported yesterday. Dolphin Energy, based in Abu Dhabi, also said it was postponing a bond sale earlier this week as it waited for the European crisis to play out.