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Greek austerity squeaks through, but budget woes remain

The Greek Parliament passed an austerity package today, but the possibility of default still looms.

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“I’m not sure what will happen now. What I see is a lot of political and social polarization in Greece,” says Takis Pappas, an expert on Greek politics at the University of Strasbourg, “and this is what worries me at the moment. Greece doesn’t have room to maneuver. Will the opposition try to take down the government or be silent. The opposition [New Democrats] will likely play hardball.”

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'Kicking the can'

The fresh $16.5 billion, however, will only sustain the Greek payroll through the summer, causing some analysts to say today’s vote merely “kicks the can down the road.”

Yet analysts at Morgan Stanley, speaking anonymously, say that the new money and time bought by “kicking the can” is necessary as a measure to calm markets and allow for new solutions and adjustments to emerge.

Philippe Waechter, chief economist at Natixis Asset Management in Paris, says the vote may be salutary but still doesn’t offer a long term answer.

“Thanks to this vote we can avoid the problematic situation that would arise from Greece's straight default,” Mr. Waechter argues, “but this vote, on a very, very drastic austerity plan, only allows for Greece to benefit from the Troika's [EU, IMF, European Central Bank] next financing tranche. What is preoccupying is that a considerable effort is made to just meet a short-term deadline. What will happen tomorrow if Greece is again in the same situation, which will surely occur if nothing is done to tackle long-term problems?”

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