Austerity administration

Greece's new coalition government, which has pledged to take steps to get to grips with the country's crippling debt crisis has won a vote of confidence in parliament.

The 300-seat parliament endorsed the government of Prime Minister Lucas Papademos by a vote of 255 for and 38 against. His coalition includes members of former Prime Minister George Papandreou's Socialists, as well as the conservative New Democracy party and the far-right LAOS party.

Prior to the vote, Papademos appealed to parliamentarians to support his government in the difficult task ahead.

"Dealing with Greece's problems will be more difficult if Greece is not a member of the euro zone," Papademos said.

The new government is expected to move quickly to pass a new budget made up of tax hikes and spending cuts demanded by the European Union (EU) and the International Monetary Fund (IMF) in exchange for a second 130-billion-euro ($177 billion) financial bailout agreed by EU leaders at a summit last month.

Staring default in the face

The EU and IMF have said they will release the next eight-billion-euro ($10.8-billion) tranche of its first bailout only if Greece accepts the conditions of the second bailout first.

Greece already agreed to push through tough austerity measures in exchange for the intial110-billion-euro bailout May 2010. Without the latest installment, Greece could go into default as soon as the middle of next month.

Papandreou's government did pass a series of austerity measures, despite mass street demonstrations and general strikes to protests against the legislation, but they clearly didn't go far enough. At the start of October his government's draft budget showed the country would fall short of the EU-IMF targets.

In his speech to parliament, Papademos, a former European Central Bank vice-president, indicated that the austerity measures introduced by his government would have to be much tougher.

"We must take more radical measures to deal with the crisis which include ... boosting the resources and the flexibility of the EFSF (European Financial Stability Facility) and creating a stronger framework of economic governance in the euro zone," the new prime minister said.

Evangelos Venizelos, who was the finance minister in Papandreou's government, has retained the portfolio under Papademos.

Following the confidence vote, both Venizelos and Papademos were to meet with Charles Dallara, the managing director of the Institute of International Finance. Dallara is leading negotiations on the details of a writedown of 50 percent Greece's debt, agreed with banks last month as part of the second bailout.

Author: Chuck Penfold (Reuters, dpa, AFP)
Editor: Michael Lawton