Monday, June 27, 2011

This week, Greece's fate hangs in the balance

The next week could decide the outcome of the debt crisis in Greece -- and the financial future of Europe along with it.

On Wednesday, the Greek Parliament is scheduled to vote on a raft of new painful austerity provisions, on top of the belt-tightening measures implemented last year.

The stakes are high, because Greece must approve the additional belt-tightening in order to win the last $17 billion of a $156 billion debt crisis relief package that was granted last year by its European neighbors.

The European Commission is hoping that the Parliament will approve the plan. "These measures, once fully implemented, will enable Greece to meet the agreed targets and remain on track," said the Commission on Friday.

Greek Prime Minister George Papandreou survived a vote of confidence last week, but his hold on power is tenuous as he tries to convince Parliament to pass the measures.

The new austerity measures include reductions in the pay of public workers and an increase in the attrition of public jobs, according to Marko Mrsnik, the lead analyst in the Standard & Poor's downgrade of Greek debt on June 13. The new austerity measures are worth an estimated $112 billion to the Greek economy, according to Deutsche Bank analyst Jim Reid.

On July 3, finance ministers of the European Union will vote on whether to approve the fifth and final tranche of funding from the bailout. (read more)