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By Harry Papachristou and Philip Blenkinsop
June 28, 2011 8:00 PM EDT
Prospects that Greece would pass an austerity package needed to avoid sovereign default improved on Tuesday when a key deputy added his support, even as street protests turned violent in Athens.
In a boost to embattled Prime Minister George Papandreou, one of his three deputies from his ruling Socialist party backtracked and said he would support the five-year plan of budget cuts, tax rises and privatization, vital for Greece to win EU/IMF funds in July needed to pay its debts on time.
"I have made the decision to vote for the plan because national interests are more important than our own dignity," Thomas Robopoulos told Reuters.
That strengths the government position for the first vote due on Wednesday, which has unleashed furious objections on the streets of the capitol. Hooded youths threw stones, wielded sticks and set fire to garbage bins and a truck outside parliament as riot police fired tear gas to disperse them. Trade unions began a 48-hour strike against the EU/IMF-imposed measures.
Growing market confidence that the Greek parliament will approve the austerity program, and that a French plan to roll over Greek sovereign bonds will help avert a default, lifted global stocks and the euro despite the mayhem. World stocks rallied 1 percent as investors took on more risks, their worries receding that the Greek crisis would worsen.
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"The negative reaction you are getting from the public is a sign that the parliament is likely to vote in favor of the austerity plan," said Marc Pado, U.S. market strategist at Cantor Fitzgerald in San Francisco.
Progress was reported in talks to persuade European banks and insurers to voluntarily roll over maturing Greek debt under a planned second rescue package designed to give the euro zone country a breathing space. German banks were looking at the proposal backed by France.
The EU's top economic official, Olli Rehn, stressed that any further assistance for the debt-crippled nation hinged on parliament adopting the austerity package in crucial votes on Wednesday and Thursday.
"The only way to avoid immediate default is for parliament to endorse the revised economic program ... They must be approved if the next tranche of financial assistance is to be released," he said in a statement.
"To those who speculate about other options, let me say this clearly: there is no Plan B to avoid default," Rehn said, dismissing widespread reports that Brussels was working on a fallback plan to keep Greece afloat.
The blunt alternative was underscored by Bank of England Governor Mervyn King, who told British parliamentarians that policymakers were working on ways to limit the damage from a potential default on Greece's 340 billion euro debt pile.
"What we're doing is to say there is sufficient concern in the market about the possibility of default for us to think about contingency plans and the consequences of this event," King said.
He urged greater transparency about sovereign exposures to prevent a sudden, broad-based loss of confidence in European banks in the event of a Greek default, which could trigger a new credit crunch.
By nightfall, several hours of clashes involving hundreds of youths had subsided and central Athens had been reclaimed by thousands of peaceful protesters denouncing measures they say hit salaried workers and the unemployed while sparing the rich.
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