Amid rising public protest and violence in the streets of Athens, Greece’s parliament overnight approved a deeply unpopular 28 billion euro austerity package that will, for the time being see the country avoid default.
Lawmakers passed a five-year package of spending cuts, tax rises and state asset sales by a comfortable margin of 155 votes to 138 in a roll-call vote,.
The solid margin suggested the government should be able to push through laws implementing specific budget measures and asset sales tonight, our time, clearing the last obstacle to obtaining 12 billion euros ($17.3 billion) of emergency loans which will be used to pay off maturing debt early next week.
The news saw markets around the world continue their rebound which started on Monday.
The euro rose again against the US dollar, finishing well over $US1.44, compared with $US1.41 on Monday.
The Aussie dollar traded well over $US1.06, which was also up around 2c this week..
Our market will open higher after Wall Street finished up for a third day.
Copper, gold and oil rose, the latter thanks to a fall in US oil stocks.
It will make for a very positive end to the month, quarter, half year and financial year in the case of Australia.
But Greece won’t go away as a major concern. The central question still remains, how long can it remain out of default.
The country is still on the brink of bankruptcy and opposition to the cuts and tax rises is growing, as we have seen in Athens all week.
Approval of the package increases the chances of a fresh international bail-out for Greece, to replace the 110 billion euro package agreed a year ago – which has failed to bring Greece’s soaring debt back under control.
And with the IMF and EU still imposing three-month checks on the country’s progress in cutting spending, raising taxes and selling off assets, we face the prospect of a regular ‘Greece to the brink’ drama, starting in September.
Part of this monitoring will be progress in selling 50 billion euros of state assets. Given the rising tide of opposition to the measures, that is extremely unlikely. This point is going to hang over the situation for the next five years.
That public opposition raises the question of whether the government can stick to the tight schedule imposed by the European Union and the IMF to implement the austerity steps.
The Greek economy is in deep recession, which has worsened by the month. Output is down 11% year on year and falling (but tourism is doing well), unemployment is more than 15%, and probably really higher, and rising.
Retail sales and other forms of consumption will continue to contract with the tax increases and higher taxes.
The banks are still dependant on the European Central Bank for nearly 100 billion euros a month to stay solvent and remain alive.
Many economists and investors still expect Greece to default in the medium term because its 350 billion euro pile of sovereign debt is so huge, about 150% of the country’s annual economic output.
Economists say the economy will end the five year period with its debt burden unchanged in real terms, but Greece’s ability to repay it will be several diminished because its economy will be smaller..
A senior German ruling coalition politician, Free Democratic floor leader Rainer Bruederle, said on Wednesday that a debt restructuring is inevitable.
That belief will permeate markets now for months, if not years.
Greece has been kept on a financial drip to postpone what most in government and the markets assumes will happen: default.
Asian shares rose ahead of the Greek vote with the Tokyo stockmarket hitting a seven-week high on the back of good production figures.
Japan’s Nikkei Stock Average ended the Tokyo morning session 1% higher, South Korea’s Kospi climbed 1.2% and Australia’s ASX 200 index added 1.2% in a strong showing.
Hong Kong’s Hang Seng Index added 0.4% and Taiwan’s Taiex advanced 0.5%.
But Chinese shares struggled after rising for six straight days, with the Shanghai Composite Index down 1.1% in a sell off that grew in the afternoon.
