Greece austerity: PM Papandreou tries to persuade MPs

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Media captionMany Greeks continue to protest against the austerity programme

Greek PM George Papandreou is trying to persuade MPs to pass further austerity measures that have sparked nationwide strikes and riots in Athens.

MPs are being asked to approve 28bn euros (£25bn) of cuts, tax rises, fiscal reforms and privatisation plans.

Eurozone ministers say the legislation must be passed to receive a 12bn-euro loan Greece needs to pay its debts.

Mr Papandreou's reshuffled cabinet was earlier approved in parliament by 155 votes to 143, with two abstentions.

Last week he reshuffled his cabinet - replacing his finance minister with former Defence Minister Evangelos Venizelos - after weeks of demonstrations against his handling of the crisis.

Ahead of the vote he warned that the alternative - a default on Greece's sovereign debts and a possible exit from the single currency - would be catastrophic for Greece.

As the vote was held in the early hours of Wednesday, thousands of people gathered outside Athens's parliament building to protest against both the austerity measures and politicians in general. Many chanted: "Thieves! Thieves!"

Persuading parliament

The confidence vote followed a heated debate that saw sections of the opposition briefly walk out. But despite the threat of a revolt within the governing Panhellenic Socialist Movement (Pasok), MPs voted strictly along party lines.

Mr Papandreou must now persuade parliament to approve a five-year package of 28bn euros of tax increases and spending cuts by 28 June.

It will then have to push through laws implementing the reforms in time for an extraordinary meeting of eurozone finance ministers on 3 July.

Athens and EU flag What went wrong in Greece?

What went wrong in Greece?

An old drachma note and a euro note
Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.

What went wrong in Greece?

The opening ceremony at the Athens Olympics
Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.

What went wrong in Greece?

A defunct restaurant for sale in central Athens
The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.

What went wrong in Greece?

A man with a bag of coins walks past the headquarters of the Bank of Greece
Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.

What went wrong in Greece?

Workers in a rally led by the PAME union in Athens on 22 April 2010
There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.

What went wrong in Greece?

Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.

What went wrong in Greece?

Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010
In 2010, the EU, IMF and ECB agreed a bailout worth 110bn euros (£92bn; $145bn) for Greece. Prime Minister George Papandreou quit the following year while negotiating its follow-up.

What went wrong in Greece?

Lucas Papademos
Lucas Papademos, who succeeded Mr Papandreou, has negotiated a second bailout of 130bn euros, plus a debt writedown of 107bn euros. The price: increased austerity and eurozone monitoring.

What went wrong in Greece?

In May 2012 elections a majority of voters backed parties opposed to austerity, but no group won an overall majority resulting in political deadlock. Fresh elections have been called in June.
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Having passed the confidence vote, Mr Papandreou now faces fresh hurdles in the government's attempts to avoid defaulting on the country's debt repayments. Greece's opposition has distanced itself from the austerity measures that the EU and the IMF are demanding as a condition for new bail-out loans.

Some members of Mr Papandreou's Socialist party also oppose the plan, and protesters say there will be a major day of action when parliament votes on multi-billion-dollar cuts and privatisations next week.

Mr Papandreou has called for unity, but the call is in a divided land, says the BBC's Chris Morris in Athens. Our correspondent says there are questions about whether Greece will fully implement the severe programme.

The demands of international lenders in Europe and elsewhere are straining Greece's political system here to the limit, he adds.

It would be a mistake to underestimate the determination of Europe's political leaders to protect the euro, says our correspondent. But the impression that the eurozone is stumbling from crisis to crisis - surviving with the liberal use of sticking plasters - has not yet been lifted.

'Moment of truth'

On Sunday, the eurozone ministers said they would withhold the payment of the latest tranche of the European Union and International Monetary Fund's 110-bn euro bail-out package until the laws were in place.

Greece needs the loan to be able to keep up with payments to creditors of its 340bn euros of debts, which amounts to 30,000 euros per person.

The eurozone ministers also agreed on Sunday to put together a second bailout package worth 120bn euros to fund Greece into late 2014.

The new aid package will include loans from other eurozone countries. It will also feature a voluntary contribution from private investors, who will be invited to buy up new Greek bonds as old ones mature. Officials said this money had to be freely given, or it would be seen as technical default on Greece's debt repayments.

The objective of Mr Papandreou, the EU and IMF is to reduce the Greek government's borrowing needs and make its debt sustainable.

Many in the financial markets expect that Greece will at some stage fail to repay its debts in full and on time, even if Mr Papandreou manages to maintain the repayments for the immediate future, he adds.

If Greece were to default on its debt - worth 150% of its annual GDP output - it would have to leave the 17-member eurozone and trigger massive losses for European banks that hold Greek debt, including the European Central Bank.

Speaking in the US on Wednesday, Federal Reserve chairman Ben Bernanke warned of the need to find a solution to Greece's woes.

"If there were a failure to resolve that (Greek debt) situation it would pose threats to the European financial system, the global financial system, and to European political unity," he said

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