What's at stake in Greek confidence vote

It’s crunch time in Greek politics: This evening, parliamentarians in Athens will cast their ballot in a confidence vote for the Greek cabinet, reshuffled by Prime Minister George Papandreou last Friday.

Investors are anxiously awaiting the vote, which could be a close one. PASOK, the prime minister’s socialist party, holds only 155 of the 300 seats in parliament. Should the vote go in favor of Mr. Papandreou, he will ask lawmakers next week to back yet another round of austerity measures – worth 28 billion euros ($40 billion).

The spending cuts are a precondition imposed by the European Union and the International Monetary Fund (IMF) before they give additional financial aid to Greece, which owes 340 billion euros ($485 billion), or 150 percent of its annual GDP to its creditors.

If Parliament votes against Papandreou's cabinet, new elections will be held and any measures to rescue Greece could be further delayed, thus increasing the chance of a default.

Opposition to austerity measures

The Greek government is facing increasing opposition to the austerity measures, in Parliament and on the street.

Thousands of protesters have been turning out for weeks now, and tonight’s vote will be accompanied by another demonstration outside the Parliament building in Syntagma Square.

Meanwhile, inspectors from the European Central Bank and the IMF have arrived in Athens. Their task, officially termed as a “technical mission," is to make sure that the Greek government does not waver in its resolve to see the spending cuts through.

“If Papandreou survives the vote of confidence today – and I expect he will – it is most likely that a majority of lawmakers will follow him also next week in the vote on spending cuts,” says Janis Emmanouilidis, senior policy analyst at the Brussels-based think tank European Policy Center. “But that does not mean that Greece will have a stable government. Protests can turn into strikes and riots, we have seen that before.”

Determined to prevent a default

Europe’s politicians are determined to prevent a sovereign default within the eurozone, which could potentially lead to Greece's exit from the common currency and the sharp devaluation of the euro.

Olli Rehn, the EU’s Monetary Affairs Commissioner, called the situation in Greece Europe’s “worst crisis since the Second World War."

“The greatest weight of responsibility lies on the shoulders of the new Greek government,” Mr. Rehn said.

The fear is that a bankruptcy of one member state could lead to a meltdown within the eurozone, where Ireland and Portugal are already receiving financial aid to keep the economy afloat and others, like Spain and Italy, are being watched with concern. But Greek voters, many of whom saw their wages drop by 15 percent while 400,000 lost their jobs last year alone, seem to prefer a default over yet more cuts and belt-tightening.

Many Greeks also feel that they have to suffer in order to protect the eurozone, says Mr. Emmanouilidis, the analyst.

“But still, Europe’s politicians aren’t just paranoid. The Greek crisis poses a systemic threat to the common currency. The last weeks and months have shown how fragile the system is, and there is a danger of a Lehman Brothers II with implications not just for Europe, but globally.”