Greek Prime Minister George Papandreou's victory in a confidence vote bolsters his new government's chances of pushing through austerity measures to secure further international financial aid for the country.

A total of 155 lawmakers supported the motion in the 300-seat parliament in Athens early this morning, with 143 voting against. Papandreou reshuffled his Cabinet and sought the approval of the chamber after fending off a revolt within his socialist Pasok party last week. After the vote, police used tear gas to disperse thousands of Greeks protesting budget cuts.

Papandreou now turns his attention to clinching parliamentary approval next week of a 78 billion-euro ($112 billion) package of budget cuts to stave off default. European finance ministers and the International Monetary Fund this week said they would hold back a 12 billion-euro payment due in July until passage of the plans to cut the deficit, sell state assets and impose a “crisis levy” on wages.

“The pressure is now on the EU to come up with concrete assurances on financing for the next 12 months,” HSBC Holdings Plc Chief European Economist Janet Henry said in a note to investors today. “Only then is the IMF expected to agree to the next disbursement of funds.”

Can't Pay Wages
Greece won't be able to pay wages and pensions after July 15 if the government doesn't secure the EU financing, government spokesman Elias Mossialos said in an interview with Skai Television yesterday before the vote.

“If we don't vote through the implementation law, there will be no fifth tranche and that means a halt in payments,” he said.

The euro was little changed at $1.4388 at 12:29 p.m. in Athens, after reaching a one-week high of $1.4423 during trading yesterday. Greek two-year bonds gained for a third day with the yield falling 19 basis points to 27.45 percent. The yield on the 10-year bond fell 7 basis points to 16.9 percent.

“This is a solid victory by Papandreou,” said Wolfango Piccoli, an analyst at the Eurasia Group in London. “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.”

Papandreou will meet his counterparts at a summit in Brussels starting tomorrow that will discuss a new financing package to shield Greece from record borrowing costs for as many as three years.

German 'Pre-Condition'
German Chancellor Angela Merkel, speaking in Berlin today to parliament's European Affairs Committee, welcomed the vote of confidence.

“This is an important step,” Merkel told the public hearing. “But the next step, in which Greece approves the additional measures it must undertake, lies ahead next week. Only under that condition can we even begin debating additional aid.”

European Commission President Jose Barroso said the result of the vote “removes an element of uncertainty from an already very difficult situation.” He said in an e-mailed statement from Brussels it was “good news for Greece and for the European Union as a whole.”

The IMF, contributor of a third of the bailout money for Greece and the two other euro-area countries that have received bailouts, Ireland and Portugal, has warned EU leaders that a failure to take decisive action on the debt crisis risks triggering “large global spillovers.”

Restore Public Finances
Acting IMF Managing Director John Lipsky said Greece's parliament must endorse the measures to restore the country's public finances for the fund to continue its aid.

“At the heart of the Greek program is the policy adjustment,” Lipsky said at the American Academy in Berlin yesterday evening. “If they are not approved, the bedrock of the program doesn't exist.”

Austrian Chancellor Werner Faymann said Papandreou must use the EU summit in Brussels to “explain how and to which extent Greece intends to fulfill the conditions set by the European Union.”

“Without fulfilling those conditions another tranche can't be approved,” Faymann said in a statement sent to the OTS wire.

Fallout from the debt crisis is already affecting markets outside Europe. BES Investimento do Brasil SA, the Sao Paulo unit of Portugal's largest publicly traded bank, is posting the biggest slump in the Brazilian bond market on concern the parent may have to repatriate funds. The top U.S. prime money-market funds have about half their assets in securities issued by European banks, according to a report by Fitch Ratings.

'Daunting Prospect'
“The adjustment itself is still a very daunting prospect but at least we have some more time,” Gilles Moec, co-chief European economist at Deutsche Bank AG in London, said by phone. “We have had such a change in mood in just a few days; in the middle of last week we were on the brink of catastrophe.”

Papandreou, 59, has 155 seats in the 300-seat chamber after one Pasok deputy on June 14 resigned from the party to protest the government's economic policies. Two days later, two socialist lawmakers quit parliament, prompting Papandreou's party to demand an emergency meeting and stoking investor concern that his grip was slipping and the chance of default growing.

“Approving the austerity measures is not going to be a problem now,” Nikos Christodoulakis, a finance minister with a previous Pasok government, said in an interview with Francine Lacqua on Bloomberg Television's “Countdown.” Asked about the possibility of default, he said, “I don't think so. One of the reasons why Greece has fallen into this debt trap is the lack of growth.”

'Change the Recipe'
Papandreou's plan wouldn't work because it wouldn't restore growth to the economy, opposition New Democracy party leader Antonis Samaras told lawmakers before the vote. “We want to change the recipe,” Samaras said.

In an effort to shore up political support, the premier replaced finance minister George Papaconstantinou in the reshuffle on June 17 with Evangelos Venizelos, his defense minister and one-time rival for the party leadership.

Papandreou will hold meetings with his ministers today to discuss the draft law for the government's fiscal plan, his office said yesterday. That's one of two laws that has to be passed by parliament by the end of the month to qualify for EU aid.

More than 47 percent of 1,208 Greeks surveyed by Kapa Research SA for To Vima newspaper oppose the new austerity measures and want early elections. Almost 35 percent said the package should be approved. Protests outside Parliament House have been held on a daily basis.

Unions have called strikes against the measures. The trade union at Public Power Corp SA began rolling 48-hour strikes on June 20, forcing the company to conduct scheduled power cuts to prevent a blackout.

Athens Protests
About 3,000 mostly young people outside Parliament last night hurled water bottles, cans and fruit at police when it was learned that Papandreou won the vote at about 1 a.m. in Athens.

Papandreou has promised to call a referendum later this year on changes to the country's political system and constitution to allay demonstrators' concerns.

Elected in 2009, Papandreou first sought a financial rescue in April 2010 to avoid default as investors refused to finance a record budget deficit. The conditions attached to the aid have helped deepen a slump that has driven the economy into recession for a third year and lifted unemployment to 15.9 percent.

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Greek Confidence Vote Bolsters Bailout Chances

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