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With vote, Greece staves off default

WASHINGTON — Greek lawmakers helped the world skirt a renewed financial crisis on Wednesday when they faced down massive, violent protests and public opposition to approve a package of tax increases and budget cuts to avoid a default.

Although world financial markets cheered the outcome, the relief may be temporary: The $17 billion in emergency loans expected to be made available to Greece will pay the nation's bills for perhaps only two more months. Unless international negotiators agree to a long-term plan for the country, it will be back to the brink by the end of summer.

Those talks are proceeding and — it is hoped — will be completed in September along with an agreement by major banks and financial institutions that hold Greek bonds to leave much of their money invested in the country.

But even if all that happens on schedule, it is only the beginning of a struggle that has the potential to disrupt the global economy for months or even years as Greece faces a grueling series of battles over how to enforce new tax and other policies, reorganize its economy, and work its way out of mountainous public debt that is still accumulating.

The new measures will touch the lives of almost every Greek citizen through higher income taxes, tougher tax enforcement and fewer government services.

Many Greek citizens made it clear Wednesday that they have suffered enough.

Protesters, fighting tear gas, hurled whatever they could find at riot police and tried to blockade the Parliament building.

"This is bad. The country will be sold for a piece of bread," said insurer Dimitris Kostopoulos. "There were many other more appropriate alternatives to this. Parliament has once again betrayed us."

Public sector salaries and pensions have been cut in the past year, and unemployment is above 16 percent. By comparison, it is about 9 percent in the United States.

Parliament approved $40 billion in tax increases and spending cuts, and privatization of public services to raise $71 billion more, all through 2015. Greece's overall economic output is about $330 billion, or roughly the size of Washington state's.

The $17 billion in loans are the latest batch in a $157 billion bailout by the European Union and the International Monetary Fund. Parliament is expected to pass another bill today to implement the austerity measures.

It will also force a major showdown between the ruling party of Prime Minister George Papandreou and the country's well-connected public unions and state-owned companies.

Greece is also considered the central test case for the ability of the 17-nation euro currency union to look out for its own — and prove that it can stay intact in the long run. Ireland and Portugal are also under emergency loan programs with the IMF and other European countries.

For now, the mood in Europe is that a bullet has been dodged.

"This was a vote of national responsibility," European Council President Herman Van Rompuy and European Commission President Jose Manuel Barroso said in a joint statement.

Information from the Associated Press was used in this report.

What's at stake if Greece defaults

Greece's debts include billions of dollars due to bondholders in July and August. A default on those payments, it is feared, could have a calamitous domino-like effect — probably triggering the bankruptcy of Greek financial institutions that hold the country's bonds; stressing major French and German institutions that are also investors; driving up borrowing costs for other indebted European countries; and perhaps causing losses in major U.S. money funds with large European holdings or prompting a general credit freeze such as the one that followed the Lehman Bros. failure in 2008.

Washington Post

With vote, Greece staves off default 06/29/11 [Last modified: Wednesday, June 29, 2011 10:52pm]
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