Greece vote a ‘moment of truth’ for EU

GREECE cleared its first hurdle in getting a vital €12 billion loan to pay debts next month and avoid default as the government won a vote of confidence.

Described as a “moment of truth” by European Commission president Jose Manuel Barroso, it did not deter 7,000 protesters from gathering in Athens to campaign against another round of austerity.

The country’s new finance minister, Evangelos Venizelos, appealed for a patriotic vote to save the nation and promised to achieve the cuts and fundraising targets more quickly than the EU/IMF programme agreement. The vote was carried by 155 to 143 with two abstentions as all the Socialist ruling party deputies voted in favour.

But while the confidence motion was an essential step for Prime Minister George Papandreou and his cabinet, he still has to get a majority next Tuesday for a further €28bn of tax increases and budget cuts plus €50bn from privatising state assets.

The next few weeks promise to be among the most tense of the euro crisis. Finance Minister Michael Noonan has warned that decisions on Greece could potentially affect Ireland.

If the Greek parliament approves the measures next week, eurozone finance ministers will hold at least another two meetings before the next tranche of the EU’s and IMF’s €110bn loan can be released. The IMF said it will not pay its €4bn contribution until it is certain that Greece is fully funded for another year. Since the country will not be able to raise money on the markets, the IMF has insisted the other eurozone countries commit to providing funds until at least mid 2012.

However the problem now is to agree the details of this new loan, which will include about €70bn of new money, and ensure it is not read as a default. The private sector will contribute voluntarily, most likely by extending the length of their loans to Greece.

But Fitch’s crediting ratings agency warned that it would treat even a voluntary rollover of Greek sovereign bonds as a default and would cut their rating to junk. This would preclude many big institutional investors from holding Greek bonds and cause banks and others that insured Greek bonds to pay out billions of euro. The fear is that this could trigger contagion in economies including Ireland’s.

The markets were more positive about Greece yesterday than they have been for some time on foot of the underlying message from the finance ministers’ meeting in Luxembourg on Sunday and Monday that the eurozone would not let Greece fail.

Mr Barroso will propose to EU leaders when they meet in Brussels later this week that they agree to release €1 billion to help create employment in Greece.

Meanwhile, Taoiseach Enda Kenny has confirmed the ECB was not consulted ahead of Finance Minister Michael Noonan’s announcement that he would seek to burn some of the Anglo Irish and Irish Nationwide bondholders.

Mr Noonan’s move has received a chilly response in Europe, but Mr Kenny insisted it was consistent with Government policy.

Picture: Greek protesters, some waving national flags, gesture at Syntagma square in front of the Greek Parliament in central Athens last night during a rally against plans for new austerity measures (AP Photo/Lefteris Pitarakis)