Greece Votes On Another Wave of Austerity Measures

on Nov 7, 2012

Three weeks is what Eurozone leaders have given themselves to finalise an overhaul of Greece’s bailout programme, which requires parliamentary backing in creditor countries. The long-delayed €31.3 billion (£25.1 billion) in aid payments meant for Athens and expected on November 27 will only be released if the Greek parliament agrees to new austerity measures in a cliffhanger vote scheduled for Wednesday night.

**Greek Bond Market**
The Greek bond market has revitalized as hedge funds bet on whether parliament will approve more budget cuts to unlock the much-needed foreign aid, or reject them and move the country closer to default. Greek bonds issued earlier this year through a debt swap deal are currently trading at less than a third of their face value but are still twice as pricy compared to when imminent Greek departure from

the Eurozone seemed possible.
Those on the buy side are optimistic Greek lawmakers will vote on Wednesday for the €13.5 billion (£10.8 billion) of spending cuts and tax increases in the 2013 budget. “There’s positive sentiment related to Greece and what looks to be the likely passage of the austerity bill,” said Richard McGuire, a senior fixed-income strategist at Rabobank International in London.

Sellers in the market, however, believe parliament will vote against the extra austerity, which is the main condition for releasing the €31.3 billion (£25.1 billion) aid package. The austerity measures include a two-year increase in the retirement age from the current 65, salary and pension cuts and another round of tax increases.
Greek Prime Minister Antonis Samaras has promised these cuts will be the “very last”, with the only other option being an Eurozone exit leading to what he has estimated would be an 80 percent drop in the standard of living. “We promised to avert the country’s exit from the euro and this is what we are doing. We have given absolute priority to this because if we do not achieve this everything else will be meaningless,” Mr Samaras added.

**Protests Against Austerity and Doubts Over Implementation**
More than 35,000 Greeks organised by two unions began a 48-hour strike to protest against the new wave of cuts. The Democratic Left Party, which is part of the three-party coalition and has 16 seats in parliament, announced it will vote against the bill because of proposed changes to labour law that among other things will reduce wages for public workers.

!m[Even If Today’s Vote Passes Implementation Remains Key Issue For The Troika](/uploads/story/737/thumbs/pic1_inline.png)Despite the protests and the dissent within the coalition, analysts believe Mr Samaras will be able to push the bill through with a narrow majority. The real issue that worries the troika inspectors is not approval of the austerity measures but their implementation. Panos Skourletis, spokesman for the Syriza party in opposition, claims implementation is unlikely. “These measures may be voted through, but they cannot be enforced because the tolerance levels of Greeks have really passed their limits,” he said as quoted by the BBC.
Diego Iscaro, economist at IHS Global, is also pessimistic: “The real problem with Greece is implementation. This is a deeply rooted institutional problem that makes implementing reform difficult. For example, despite taxes going up, tax collection has fallen because evasion is high.”
Mr Samaras has warned that if Greece is not given the €31.3 billion (£25.1 billion) rescue package it will most likely default in less than a month, sending the country into chaos and shaking the stability of the entire Eurozone.
**12.30 Update:** According to the latest tweets, parts of the austerity measures have been ruled as unconstitutional by the Supreme Court, including cuts to judiciary and all other unsustainable/difficult cuts. Parliament on the other hand has said the measures are legal.


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