Greece’s Papandreou gets some breathing room

Greek Prime Minister George Papandreou survived a crucial confidence vote, winning his gamble on the fate of his government and helping him contain a debt crisis that has rattled international markets and imperils Europe’s single currency.

Papandreou was backed by all 155 of his Socialist party lawmakers in the 300-seat Parliament. Two opposition deputies abstained, and 143 voted against the government.

If Papandreou had failed to win the midnight Tuesday vote, it would have forced him to resign, pushing Greece into a messy restructuring of its $485-billion debt or an outright default — a first within the club of 17 nations that share the euro currency.

U.S. stocks rallied and the euro strengthened as analysts watched Greece take action to avert default. Analysts remained cautious, however.

“Greek politics remain the main risk,” said a recent report from Nomura International, which put at 70% the probability of Papandreou’s government winning the confidence vote and passing a controversial austerity bill a week later.

Parliamentary approval of both is needed by the end of the month if the European Union and the International Monetary Fund are to release the next installment of a $146-billion bailout package stitched together last year to stave off Greek default.

“This [vote] was a mini-hurdle for Papandreou,” former Finance Minister Stefanos Manos said. “His biggest challenge will be pushing the austerity package through Parliament [next week]. It won’t be easy, and it’s anyone’s call.”

The confidence vote capped a week of political drama that had Papandreou, 59, dealing with a revolt within his own party as controversy over the new round of austerity measures unleashed sometimes violent social unrest.

To appease party dissenters and the crowds of protesters that have camped outside Parliament for four weeks now, the U.S.-born Papandreou offered to step down and form a coalition government. When his conservative opponent showed interest in the deal, he retracted the offer, opting instead for a Cabinet reshuffle that replaced the architect of Greece’s austerity drive with a pugnacious populist.

On Tuesday, shortly before the vote, the usually soft-spoken Papandreou offered a spirited defense of his policies in a bid to shore up cross-party support.

“I understand the anger, the frustration, the fear gripping every Greek who has made painful sacrifices,” he said. “But we will make it.”

“Brazil, Korea, Estonia — they all did. Even Turkey succeeded. Why shouldn’t we?” Papandreou asked as more than 20,000 protesters outside jeered lawmakers with the announcement of the vote.

The ruling Socialists now face an even tougher task: getting the brutal budget cuts approved.

With the bulk of the measures pinned on tax hikes — from higher sales taxes on restaurants and soft drinks to levies on wages — analysts warn that the proposals may choke growth, sinking Greece deeper into recession.

“It’s like stabbing a knife into a wound,” said Yanis Varoufakis, an Athens-based professor of economics. “The measures will do almost nothing to slash the deficit, and Greece’s protracted political instability will lead the country to the inevitable: default.”

A new poll showed nearly one in two Greeks opposing the measures, with most voters supporting an early trip to the ballot box.

Eurozone finance ministers have given Athens until July 3 to ratify the budget cuts. “If they don’t,” said Luxembourg Prime Minister Jean-Claude Juncker, head of the EU’s finance ministers, “then we will act accordingly.”

Carassava is a special correspondent.