–Adds Comments By Finance Minister and Prime Minister On “Plan B”

ATHENS (MNI) – Greece’s parliament has approved a controversial
package of austerity and privatization measures in a suspenseful vote
that will bring a collective sigh of relief, at least temporarily, to
global financial markets and the Eurozone.

The vote represents a major victory for Prime Minister George
Papandreou and his Socialist Party government, which had warned that
rejection of the so-called “medium-term fiscal plan” would lead to
national disaster.

The plan prevailed by a vote of 155 to 138, with 5 members of
Parliament voting “present.”

One member of the ruling Socialists, Panayiotis Kouroumblis,
defected to vote against the plan. His vote was offset by the defection
of opposition MP Elsa Papadimipriou, who crossed the aisle in the other
direction to support the government position. The 155 votes in favor
equals the number of seats held by the Socialists in the 300-member
Parliament.

However, Papandreou said after the vote that he was expelling
Kouroumblis from the party, and Koroumblis in turn announced that he
would remain in Parliament as an independent, meaning Papandreou’s
majority will be reduced by 1 seat to 154.

Approval of the package, which includes E28 billion in spending
cuts and tax hikes, as well as a highly controversial privatization
program pegged at E50 billion, came amid ongoing protests in the streets
of Athens on Wednesday and reports of more violence between the
protesters and police.

Officials from the ECB, the European Commission and several
national Eurozone governments had cautioned that failure to approve the
measures would have dire consequences, including a Greek default on its
debt. The country’s central bank Governor George Provopoulos warned the
night before the vote that rejection of the package would be tantamount
to national “suicide.”

The European Commission, the International Monetary Fund and the
European Central Bank — the so-called “troika” — had all said that
passage of the measures was an absolute condition for Greece to receive
a E12 billion loan tranche from its current EMU-IMF bailout plan.
Without that money, Greece would not be able to pay off bonds maturing
in July and would be in default.

Before the vote, there had been speculation about a “Plan B” in
case the Parliament rejected the measures. While some German officials
suggested there was such a plan, other European authorities, including
ECB Executive Board member Juergen Stark and EU Economic and Monetary
Affairs Commissioner Olli Rehn argued that there was not and could not
be.

Near the end of the parliamentary debate today, just prior to the
vote, Greek Finance Minister Evangelos Venizelos addressed the issue,
saying that a fall-back plan did exist under which Greece would get a
fraction of the EMU-IMF tranche. “Not all of it, but we would be getting
[payments] in small amounts in order to avoid default,” he said.

Papandreou, who spoke immediately after Venizelos, said Plan B
would “have as its prime objective to protect the interests of our
lenders and not our own.”

With the full E12 billion now seemingly assured, Greece will stay
afloat financially until September, when the next tranche is due.
European officials, along with private creditor banks, are in talks for
a second bailout package, estimated at E100 to E120 billion, which they
hope will be in place before September. EMU finance ministers are
expected to sketch out at least the broad outlines of the plan at
meetings on July 3 and 11.

Today’s vote should greatly facilitate that process by providing
the breathing room that Greece needs. Papandreou, addressing Parliament
moments before the voting began, said that approving the measures was
the only way for Greece to “buy time.” He suggested that his government
might revisit some of the more “unjust” details in subsequent
negotiations with its Eurozone partners and the IMF.

However, today’s vote was only the first in a two-step process. On
Thursday, Parliament must vote again on a so-called “enforcement law,”
which is needed to actually ensure that the measures are implemented.
But with the approval today of the basic content of the plan, the
chances that implementation might be rejected tomorrow seem highly
remote.

The package passed today consists of three major categories:
spending cuts, which include pay cuts and job reductions in the public
sector; tax hikes, which include increases on virtually all income
categories; and privatization, which is to be managed by an outside
agency with strong input from foreign experts.

In an interview with the Financial Times Tuesday, Provopoulos
complained that the package puts too much emphasis on tax increases and
not enough on spending cuts. They are both extremely unpopular, as is
the privatization plan, and have brought tens of thousands of protesters
— and rioters — into the streets of Athens every day for the past
month.

Meanwhile, there are new questions about the ability of Greece to
hit its E50 billion privatization target.

The FT, citing a new report, said Greece “will struggle” to sell
even a quarter of the E50 billion targeted, “unless it adds more prime
land and cultural heritage to its sales list” — a move that would raise
the temperature on the streets even further.

According to the report, by Milan-based Privatisation Barometer,
only slightly more than E13 billion of Greek assets are ready to sell.
E6.6 billion from stakes in 15 listed companies and E7 billion from the
sale of 70 unlisted companies, a figure that the report calls
“optimistic.”

Greek adoption of the measures is an indispensable piece of overall
plans for financing Greece, but only one piece. Eurozone governments,
led by Germany, are insisting that private sector creditors contribute
to any second Greece bailout package.

A french proposal for banks to roll over 70% of their Greek bonds
maturing between now and 2014 for 30 years — and to plough 20% of that
amount into a “special purpose vehicle” for the purpose of guaranteeing
newly issued Greek bonds — is gaining some traction as a possible model
for private sector participation. Details, however, would very likely
differ from country to country and even from bank to bank.

Another option in the French proposal is to reinvest 90% of
maturing debt in new five-year Greek paper. That might assuage German
banks, who are not warming to the idea of reinvesting for 30-years.

These proposals, along with plans for new loans from the EU and the
IMF, will be on the table at the upcoming Eurogroup meetings.

[TOPICS: M$X$$$,MT$$$$,MGX$$$,M$$CR$]