Greece: Papandreou urges MPs to back austerity plan

George Papandreou, file pic from 24 June 2011
Image caption Mr Papandreou called on all political parties to back the five-year austerity plan

Greek PM George Papandreou has told MPs his severe austerity plan is the only way to get Greece back on its feet.

He was speaking as parliament debated the plan, the approval of which needed to secure fresh international loans.

The planned cuts and sell-offs have sparked nationwide strikes and violent protests, but the alternative appears to be national debt default.

The bill is due to go to a vote on Wednesday and - if passed - would come into force the following day.

It would trigger the release of 12bn euros (£10.7bn) in loans to Greece from the European Union and International Monetary Fund.

The outcome of the debate is uncertain. Mr Papandreou faces opposition from within his own Socialist ranks, with two of his own deputies saying they may oppose the bill.

His governing Pasok party has a slim majority, with 155 seats out of 300 in parliament.

The package of measures, including tax increases, spending cuts and the sale of state assets, is thought to be worth 28bn euros in savings over five years.

'Only chance'

Addressing MPs on Monday evening, Mr Papandreou called on all political parties to back the five-year plan.

Athens and EU flag What went wrong in Greece?

What went wrong in Greece?

An old drachma note and a euro note
Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.

What went wrong in Greece?

The opening ceremony at the Athens Olympics
Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.

What went wrong in Greece?

A defunct restaurant for sale in central Athens
The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.

What went wrong in Greece?

A man with a bag of coins walks past the headquarters of the Bank of Greece
Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.

What went wrong in Greece?

Workers in a rally led by the PAME union in Athens on 22 April 2010
There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.

What went wrong in Greece?

Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.

What went wrong in Greece?

Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010
In 2010, the EU, IMF and ECB agreed a bailout worth 110bn euros (£92bn; $145bn) for Greece. Prime Minister George Papandreou quit the following year while negotiating its follow-up.

What went wrong in Greece?

Lucas Papademos
Lucas Papademos, who succeeded Mr Papandreou, has negotiated a second bailout of 130bn euros, plus a debt writedown of 107bn euros. The price: increased austerity and eurozone monitoring.

What went wrong in Greece?

In May 2012 elections a majority of voters backed parties opposed to austerity, but no group won an overall majority resulting in political deadlock. Fresh elections have been called in June.
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"Our vote is the only chance for the country to get back on its feet," he said.

In an interview published on Sunday, Deputy Prime Minister Theodor Pangalos was optimistic about winning the first round of general votes on tax and spending targets and the creation of a privatisation agency.

But he was more cautious about whether the government could get through further legislation on individual budget measures and the privatisation of specific state assets.

Unions have called a two-day national strike starting on Tuesday.

Even as the next slice of aid under the existing 110bn euro bail-out is being discussed, the EU and the IMF are debating a second rescue package that could rival the size of the existing one.

They want private lenders to help out with this for the first time by agreeing to softer lending terms for the Greeks.

Investors' warnings

French President Nicolas Sarkozy has said his country's banks would help Greece out of its crisis by allowing it to repay its debts over 30 years.

In a rollover plan being worked out by the French government and finance chiefs, major French banks were prepared to re-lend 70% of Greek loans they hold, France's Figaro newspaper reported on Monday.

The British Treasury has denied it is pressing banks to "take a haircut" on their Greek debt investments.

On Monday, two major investors warned of the gravity of the situation facing Europe.

The joint head of the world's biggest bond fund manager, Pimco, said restructuring Greece's sovereign debt was inevitable.

The firm's co-chief investment officer, Mohamed El-Erian, warned the nation's problems could "contaminate" Europe.

And leading investor George Soros, who reportedly made £1bn when the pound crashed out of the euro's forerunner, the ERM, said the world was on the brink of another disaster.

Mr Soros said it was almost inevitable that one or more eurozone country would exit the single currency.

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