The market signals the austerity package will pass in Greece but not by many votes
06/28/2011 7:14 pm EST
As of the close in New York on June 28 the euro was up 0.4986% or 0.7 cents to $1.4358. The euro should be climbing if the market believes Greek lawmakers will pass the package of tax increases, budget cuts, and asset sales. But it would be up significantly more if the vote weren’t likely to be so close. Prime Minister George Papandreou’s Socialist party controls just 155 seats in the 300-member body. That would be enough to give Papandreou the majority he needs except that several Socialist legislators have recently voiced their opposition to the package.
The vote is going to be very, very tight and the austerity package is likely to pass only because the alternatives—a default by Greece on its government debt is the most likely—are so grim.
The International Monetary Fund, the European Union, and the European Central Bank have said they will not release the next $17 billion in rescue funds for Greece without a “yes” vote on the package. Greece faces the need to rollover $9 billion in maturing bonds in August.
The austerity package is necessary but not sufficient to assure that EuroZone politicians will approve a new rescue package for Greece. The package put together last year will only get Greece into 2012 and it’s now very clear that Greece won’t be able to tap the financial markets to finance its debt in 2012. A new package to get Greece through 2013 or 2014 has been hung up in negotiations over whether current bondholders should be required to share the cost of the bailout or whether their participation should be voluntary.