Greek Prime Minister George Papandreou's victory in a confidencevote bolsters his new government's chances of pushing throughausterity measures to secure further international financial aidfor the country.

A total of 155 lawmakers supported the motion in the300-seat parliament in Athens early this morning, with 143 votingagainst. Papandreou reshuffled his Cabinet and sought the approvalof the chamber after fending off a revolt within his socialistPasok party last week. After the vote, police used tear gas todisperse thousands of Greeks protesting budget cuts.

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

“The pressure is now on the EU to come up with concreteassurances on financing for the next 12 months,” HSBC Holdings PlcChief European Economist Janet Henry said in a note to investorstoday. “Only then is the IMF expected to agree to the nextdisbursement of funds.”

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

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

The euro was little changed at $1.4388 at 12:29 p.m. inAthens, after reaching a one-week high of $1.4423 during tradingyesterday. Greek two-year bonds gained for a third day with theyield falling 19 basis points to 27.45 percent. The yield on the10-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 haspassed. The second — approval of the medium-term fiscal plan — willbe more difficult but the government should manage to get itapproved.”

Papandreou will meet his counterparts at a summit in Brusselsstarting tomorrow that will discuss a new financing package toshield Greece from record borrowing costs for as many as threeyears.

German 'Pre-Condition'
German ChancellorAngela Merkel, speaking in Berlin today to parliament's EuropeanAffairs 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 additionalmeasures it must undertake, lies ahead next week. Only under thatcondition can we even begin debating additional aid.”

European Commission President Jose Barroso said the result ofthe vote “removes an element of uncertainty from an already verydifficult situation.” He said in an e-mailed statement fromBrussels it was “good news for Greece and for the European Union asa whole.”

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

Restore Public Finances
Acting IMFManaging Director John Lipsky said Greece's parliament must endorsethe measures to restore the country's public finances for the fundto 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'texist.”

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

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

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

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

Papandreou, 59, has 155 seats in the 300-seat chamber after onePasok deputy on June 14 resigned from the party to protest thegovernment's economic policies. Two days later, two socialistlawmakers quit parliament, prompting Papandreou's party to demandan emergency meeting and stoking investor concern that his grip wasslipping and the chance of default growing.

“Approving the austerity measures is not going to be a problemnow,” Nikos Christodoulakis, a finance minister with a previousPasok government, said in an interview with Francine Lacqua onBloomberg Television's “Countdown.” Asked about the possibility ofdefault, he said, “I don't think so. One of the reasons why Greecehas fallen into this debt trap is the lack of growth.”

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

In an effort to shore up political support, the premier replacedfinance minister George Papaconstantinou in the reshuffle on June17 with Evangelos Venizelos, his defense minister and one-timerival for the party leadership.

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

More than 47 percent of 1,208 Greeks surveyed by Kapa ResearchSA for To Vima newspaper oppose the new austerity measures and wantearly elections. Almost 35 percent said the package should beapproved. Protests outside Parliament House have been held on adaily basis.

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

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

Papandreou has promised to call a referendum later this year onchanges to the country's political system and constitution to allaydemonstrators' concerns.

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

Bloomberg News

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.