Greece buys itself breathing space

The European Union and International Monetary Fund had demanded Parliament pass two bills – an austerity law and a second bill detailing how it will be implemented – by June 30 before they approve a 12 billion euro (£10.4 billion) instalment from the country’s 110 billion euro (£96 billion) package of rescue loans.

Without the next instalment of rescue loans, Greece was to run out of money in mid-July.

Despite that overhanging threat, many Greeks are angry at yet more austerity.

A 48-hour general strike and outbreaks of violence on the streets of Athens brought much of Greece to a standstill in the run up to Wednesday’s vote on 28 billion euro (£24 billion) worth of spending cuts and tax rises and a 50 billion euro (£44 billion) privatisation programme.

More than 300 people have been injured in two days of mayhem in central Athens, which saw rioters pelting police with anything they could find, and police responding with a barrage of stun grenades and tear gas.

Windows at cafes and shops were smashed, and a post office housed on the ground floor of the finance ministry building torched. Burning barricades set up across central streets smouldered into the early hours.

The austerity measures, which slap taxes even on the lowest paid, have sparked repeated strikes and demonstrations.

The riots came during a 48-hour general strike that disrupted services across the country, forcing airlines to cancel or reschedule flights, halting nearly all public transport and leaving ferries tied up in port.

Fears of a Greek default have weighed heavy on global markets in recent weeks – investors have been fretting that a default could trigger a major banking crisis and turmoil in global markets, similar to what happened when the Lehman Brothers investment house collapsed in 2008 in the United States.

Concerns of a near-term default have been eased, however, as the money will see Greece through to September.

That is clearly evident in the performance of global markets in the past couple of days. Athens’s main stock market closed another 1.1 per cent higher after Parliament passed the second law by 155 votes to 136,

“Greece has bought more time,” said economist Vagelis Agapitos. “This time however will start running out rather quickly unless Greece starts to deliver on its promises.”

The worst case scenario is it may only have a couple of months to show it is doing so – in September, it will once again have to prove it has implemented all it has promised to receive any further funds from last year’s bailout package.

One particular point of interest will be what progress it is making on the privatisation drive in light of continued union opposition. Few state enterprises are immune, from the race track and ports to the state electricity company.

Even if Greece gets through the next hurdle in September, there are still real worries the country will end up eventually having to restructure its debts – negotiating longer repayment times or giving creditors less than the full amount owed.

Many economists believe Greece will ultimately have to default at some point as the scale of the debt at 340 billion euro (£296 billion) is just too big for a country of only 11 million people to service.

For now though, the Greek government has conceded it is going to need more help and is in talks for a second bailout. Last year’s package was predicated on Greece being able to tap bond market investors for cash next year, but with the country’s interest rates at exorbitant levels, that looks highly unlikely.