ECONOMY

Mixed reactions to confidence vote

Prime Minister George Papandreou?s 155 to 143 victory in a confidence vote in Parliament in the early hours of Wednesday was met with mixed reactions by the international community.

The confidence vote is expected to help the crisis-hit government push through Parliament a controversial austerity program aimed at raising 78 billion euros that will determine whether or not Greece will receive the fifth tranche of aid from the troika (the European Union, European Central Bank and International Monetary Fund), worth 12 billion euros, in July.

?This is a solid victory by Papandreou,? Wolfango Piccoli, an analyst at The Eurasia Group in London told Bloomberg. ?The first hurdle has passed. The second — approval of the medium-term fiscal plan — will be more difficult but the government should manage to get it approved.?

In a note to investors on Wednesday, HSBC Holdings Plc Chief European Economist Janet Henry said ?following the Greek government?s victory, we still expect Greece to be given the July disbursement of 12 billion euros of EU-IMF funds and an extended program out to 2014,? according to Bloomberg. ?But the pressure is now on the EU to come up with concrete assurances on financing for the next 12 months to fill the gap left by the assumed lack of market access. Only then is the IMF expected to agree to the next disbursement of funds.?

The IMF, which is contributing one-third of the bailout money for Greece, as well as for Ireland and Portugal — the two other eurozone countries that have received international assistance — insists that adoption of the reform package, which foresees extensive budgets cuts and the sale of state assets, is necessary for the disbursement of any further funds. The IMF also stressed that European Union leaders need to bring the crisis under control in order to avert the risk of ?large global spillovers.?

?At the heart of the Greek program is the policy adjustment,? IMF Managing Director John Lipsky said at the American Academy in Berlin on Tuesday evening. ?If they are not approved, the bedrock of the program doesn?t exist.?

Speaking at a conference in Taipei just hours before the confidence vote in Greek Parliament, Mohamed El-Erian, head of Pimco, the world?s biggest bond fund, said he expected Greece to end up defaulting on its debt.

?For the next three years, we?re going to see different economies work out different problems. For European economies, especially Greece, it would be through default,? Reuters reported El-Erian as saying.

The euro rose briefly on Wednesday morning on the news of the government?s victory, though it soon dropped over concerns about its ability to implement austerity measures in a beleaguered nation where public reaction to the reforms over the past year have at times turned violent.

?The reaction of the people is going to be critical,? William Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Massachusetts, told Reuters. ?If we see cars burning and protests… then all this short-term success is going to get sucked out the window.?

Minor scuffles between police and a small group of protesters were reported on Tuesday night as thousands of people gathered in front of Parliament on Syntagma Square awaiting the outcome of the confidence vote.