Europe heaves sigh of relief as Greece survives trust vote

European leaders today heaved a sigh of relief after the Greek government survived a vote of confidence and encouraged it to make all efforts to secure the Parliament's approval for a new package of austerity measures to avert a bankruptcy.

German Chancellor Angela Merkel hailed the Greek Parliament's endorsement of Prime Minister George Papandreou's new Cabinet last night as an "important step" toward rescuing the country from its present debt crisis, which is threatening to spread to other cash-strapped nations in the euro zone.

However, the government in Athens crossed only one hurdle in its efforts to stabilise the nation's economy even a year after it received a 110 billion euro (USD 159 billion) bailout from the European Union and the International Monetary Fund (IMF) and it should take "all necessary steps" to ensure that
its new austerity measures will win parliamentary support next week, she said. 

The finance ministers of the euro zone nations last Sunday delayed a decision on releasing the latest tranche of that assistance, amounting to 12 billion euros (17 billion dollars), until the Greek Parliament approves the government's austerity package, which aims to raise up to 28 billion euros through drastic spending cuts, tax increases and a privatisation programme.

The latest austerity measures after two unsuccessful packages earlier sparked off nation-wide strikes, protest demonstrations and riots in the capital. 

Greece urgently needs the fifth tranche to avert defaulting on its debt repayments due next month. 

"The ball is now in the government's court" and it should win the support of the Opposition before the voting on the austerity package scheduled for next week, Merkel told a meeting of the European affairs committee of the Bundestag, the Lower House of Parliament, in Berlin.

On the eve of a crucial summit of the heads of state and government of the European Union in Brussels, Merkel defended the decision of the euro zone finance ministers in Luxembourg to hold back the emergency assistance until the Greek government's new austerity measures are put in place.

She also reaffirmed her government's intention to participate in a second multi-billion euro financial bailout of Greece if the government in Athens makes progress in implementing its austerity measures and in carrying out structural reforms to scale down its huge budget deficit and national debt, as well as to increase the competitiveness of the nation's industries.

She reiterated the German government's view that private creditors should be involved in the proposed second bailout on a "voluntary" basis for the first time to ensure that taxpayers alone will not have to shoulder the burden.

The involvement of private investors such as banks, investment funds and insurance firms in a future bailout will be entirely on a voluntary basis and there will be no pressure on them to participate, she said.

The EU leaders are expected to agree on a basic framework of a second rescue package for Greece ranging between 90 billion euros and 120 billion euros at their summit on Thursday and Friday.

European Commission President Jose Manuel Barroso welcomed last night's vote by the Parliament in Athens as "good news for Greece and for the European Union". 

The vote removed an element of uncertainty from an already complicated situation, he said in a statement in Brussels.

Papandreou and his government "can now focus all their efforts to building support in Parliament for their ambitious series of fiscal measures and privatisation" agreed with the European Union and the IMF, he said.

If the Greek Parliament approves these measures next week, it will not only clear the way for the release of the next tranche of financial assistance, but it will also mark a big step toward Greece's return to fiscal consolidation and sustainable economic growth, Barroso said. 

The Greek Prime Minister, who reshuffled his Cabinet last week, appointing Defence Minister Evangelos Venizelos as the new Finance Minister in the midst of a political crisis and surging anti-government demonstrations, won last night's vote of confidence by 155 votes against 143, with two abstentions.