Greece passes key austerity vote

29 June 2011 Last updated at 14:07 GMT The BBC's Jon Sopel describes the battle between the police and rioters as one of "cat and mouse"

The Greek parliament has voted in favour of a drastic package of austerity measures intended to save the country from defaulting on its debts.

The proposed tax hikes and spending cuts have been deeply unpopular with the Greek public.

A nationwide 48-hour strike is under way and violent clashes are continuing in the streets of the capital, Athens.

Greece is heavily in debt and the package is needed to win the latest tranche of a 110bn-euro (?98bn) loan.

MPs passed the measures by 155 votes to 138.

They will hold a second vote on Thursday aimed at law reforms that would allow the package to be implemented.

'No time to step back'

Ahead of the vote, PM George Papandreou urged MPs to approve the package by consensus.

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Total Greek debt

Greece is about to get a second bail-out from the EU, aimed at helping pay its debts until 2014. It also has to agree more cuts as part of the deal.

The economy

The Greek economy is in dire straits. Retail sales have fallen 18% since 2008 and manufacturing output has dropped 30% in the same period.

Working population

Greeks retire on average at 61. Tax evasion is widespread. Until 2010, public sector workers received two months extra pay a year in bonuses.

EU demands

To meet EU demands, Greece must sell 50bn euros-worth of public assets by 2014, equal to 20% of GDP. Public sector pay is being cut 15%.BACK {current} of {total} NEXT He had faced wavering support from within his governing Panhellenic Socialist Movement (Pasok), which has a slim majority, with 155 seats out of 300 in parliament. But in the end, only one Pasok deputy voted against the package.

Mr Papandreou says his austerity plan is the only way to get Greece back on its feet.

"We must avoid the country's collapse at all costs. Now is not the time to step back," he told deputies.

Were his 28bn-euro austerity package to be rejected, Greece could run out of money within weeks, as the EU and the International Monetary Fund want the measures implemented before they release more funds to help Greece pay off its vast debts.

Top EU officials welcomed the result as a "vote of national responsibility", saying it had pulled Greece away from the "very grave scenario of default" while paving the way for a second aid package.

"The country has taken an important step forward along the necessary path of fiscal consolidation and growth-enhancing structural reform," European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy said in a joint statement.

'Unfair but necessary'

But Greek unions are angry that the government's austerity programme will impose taxes on those earning the minimum wage, following months of other cuts that have seen unemployment rise to more than 16%.

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No one in Greece believes the tax increases, lay-offs, privatisations will ever be fully implemented. ”

End Quote Gavin Hewitt BBC Europe editor Sporadic clashes are continuing between masked protesters and riot police outside parliament.

Shortly after the vote, dozens of rioters using ladders broke into the first floor of an office building near parliament on Syntagma Square before being driven out by police, witnesses said.

The vote covered the first part of Greece's austerity package, focusing on raising taxes to secure some 14.09bn euros over the next five years and introducing 14.32bn euros in public spending cuts.

The package is needed to secure the next instalment of the country's 110bn-euro bail-out to be released by the EU and IMF.

Ahead of Wednesday's vote, the governor of Greece's central bank, George Provopoulos, said a 'no' vote would be "suicide" for the country.

Thursday's vote is over the implementation of different parts of the package, such as tax rises and the sale of state assets.

Continue reading the main story June 29: Parliament approves new austerity package June 30: MPs to vote on details of implementing packageJuly 3: EU will sign off latest bail-out payment to Greece - 12bn euros - if both votes are passedJuly 15: Without the 12bn euros, Greece will defaultOnce passed, European officials will start to finalise the details of a second bail-out, worth an estimated 120bn euros, designed to help Greece pay its debts until the end of 2014.

The impact of the Greek vote would be felt worldwide said Herman Van Rompuy, president of the EU Commission, on Tuesday.

Recently appointed Finance Minister Evangelos Venizelos acknowledged that the cuts were "unfair", though absolutely necessary.

But the main opposition leader, Antonis Samaras of the New Democracy party, said the thinking behind the austerity package was flawed, and that tax rates should be lowered rather than raised in order to stimulate the economy.

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