BREAKING NEWS: Greek PM Papandreou wins confidence vote

Fri Nov 4, 2011 7:23pm EDT

(Reuters) - Greek Prime Minister George Papandreou won a parliamentary confidence vote on Saturday, avoiding snap elections which would have torpedoed Greece's bailout deal and inflamed the euro zone's economic crisis.

Papandreou's socialist government won with all his party lawmakers in the 300 member parliament supporting the government, but his term as prime minister appeared close to an end.

Earlier Papandreou called for a new coalition government to approve the 130 billion euro bailout deal which is vital for saving the country from bankruptcy and tackling the euro zone's economic crisis, and signaled he was ready to stand down.

Papandreou Seeks to Shore Up Aid Support After Surviving Vote

Bloomberg, 5 November, 2011

Prime Minister George Papandreou, fresh from winning a confidence vote, will attempt to shore up support for an international rescue after Greece’s main opposition party rejected his offer to form a new government.

Greek Prime Minister George Papandreou, right, and Finance Minister Evangelos Venizelos react during a confidence vote meeting at the parliament in Athens on Nov. 4, 2011. Photographer: Petros Giannakouris/AP

Papandreou will meet President Karolos Papoulias at midday to discuss his plans for a unity government after patching up a rift within his ruling Pasok party by offering to step down.

“We have to agree on common goals for a timetable and program even for the head of this government,” Papandreou told lawmakers in the early hours of this morning before winning his second confidence motion in six months. “The scale of the task facing Greece exceeds the abilities of any one party.”

Papandreou’s offer caps a tumultuous week that started with him securing a second bailout from the European Union then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote. The premier must heal political divisions to secure agreement on the aid package before Greece runs out of funds next month.

“Papandreou, by bringing things to a head, has basically, without expecting this to happen, sacrificed his own political career,” Sassan Ghahramani, chief executive officer of SGH Macro Advisors, said on Bloomberg Television’s “Street Smart.” “The price for that has been that the opposition party is now willing to cooperate with a transitional government if it comes into place and show a more united front towards the EU and IMF.”

Stocks Decline

Papandreou won the vote in the 300-member parliament by 153 votes to 145, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV today.

European stocks extended the biggest weekly slide in six and the euro fell before the confidence vote as a meeting of the world’s top 20 leaders ended without agreement on how to support the continent’s indebted nations. Finance Minister Evangelos Venizelos told lawmakers the outlines of an agreement needs to be in place before a scheduled meeting with European finance ministers on Nov. 7.

“The country risks losing its autonomy, its level of life and the international context is becoming more stifling every day,” Venizelos said. “Society must at last be able to breathe and on Monday, the country must be represented in a credible and reliable way at the Eurogroup.”

Greek opposition LAOS party leader George Karatzaferis, who controls 16 seats in parliament, will propose a new prime minister as a condition for forming a unity government, according to the Athens News Agency.

‘Masks Fallen’

Papandreou reinstated Louka Katseli, a former labor minister, to the ruling party’s parliamentary group after she cast a vote supporting the government. Her return brings Papandreou’s majority back to 153.

“The masks have fallen,” Antonis Samaras, head of the New Democracy party, said in an e-mailed statement from his Athens- based office today. “Papandreou has rejected all of our proposals. The responsibility he bears is huge. The only solution is elections.”

The Communist Party of Greece, the third-largest party with 21 seats, and Syriza, which has nine, also rejected the overture from Papandreou, and called for elections. “I won’t bow to blackmail,” Communist Party leader Aleka Papariga said.

The government will need the backing of 180 lawmakers to secure approval for Greece’s second aid package that was agreed in Brussels last month. Disbursement of funds was halted after Papandreou’s call for a referendum was opposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.

“In the eyes of Angela Merkel and Nicolas Sarkozy he doesn’t have much credibility left,” Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics, said in a Bloomberg TV interview. “Greece needs to have a new face to the rest of the world.”

Broader Government

Papandreou, a graduate of the London School of Economics and former foreign minister, had survived a confidence vote in June called to rally support for austerity measures demanded by international lenders in return for a continuation of a 2010 bailout, the first for an EU nation. The EU and International Monetary Fund agreed to provide 110 billion euros ($135 billion) in May last year in return for cuts in government spending and public sector jobs.

His referendum plan triggered a suspension in assistance by EU leaders less than a week after they’d approving a second rescue that wrote down the value of Greek debt by 50 percent.

Resolve Deadlock

Papandreou’s inability to resolve the political gridlock pushed the country closer to the first default by an EU nation even as his scrapping of a referendum averted potential ejection from the 17-member euro region.

European Commission President Jose Barroso said he expected a government of national unity will approve last week’s bailout agreement with the EU before Greece runs out of funds, which Greece says could happen in mid-December.

The surprise referendum announcement triggered the biggest two-day slide in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records. Greek two-year bond yields climbed above 100 percent for the first time yesterday after the EU blocked aid.

St. Paul, Minnesota-born Papandreou, whose father formed the party at the end of Greece’s military rule, had said he was prepared to lose his job if it meant pushing through austerity measures needed to fix Greece’s finances. The nation’s debt is expected to balloon to 162 percent of gross domestic product this year.

“I would be very surprised if Greece doesn’t default in the next few weeks,” Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London. “I cannot see how the Europeans will pay the next tranche knowing that the Greeks will try and renegotiate the rest of the original Oct. 26 package once this payment has been made.”