IMF chief calls for Greece unity after austerity measures backed

Greece’s lawmakers approved a key austerity bill needed to avert default next month, despite a second day of rioting on the streets of Athens that left dozens of police and protesters injured.

The passage of the bill was a decisive step for the country to get the next batch of bailout loans from international creditors due from last year’s financial rescue. Another bill has to be passed today for the government to secure the money.

The bill to cut spending and raise taxes by the equivalent of £25bn over five years, and raise £43.5bn in privatisations over the same period of time, has provoked widespread outrage, coming after a year of deep cuts that have seen public sector salaries and pensions cut and unemployment rise to above 16 per cent.

The European Union and International Monetary Fund have demanded both bills pass before it releases a 12 billion euro (£10.4bn) instalment of the country’s 110 billion euro (£96bn) bailout fund.

Without it, Greece was facing defaulting on its debts by the middle of next month, potentially triggering a banking crisis which would have been disastrous for Europe and created turmoil in global markets.

Even with the instalment, Greece is still in financial trouble and has been in talks with its international creditors for a second bailout, which Prime Minister George Papandreou has said will be roughly the same size as the first.

“We must avoid the country’s collapse with every effort,” Mr Papandreou said before the vote.

“Outside, many are protesting. Some are truly suffering, others are losing they privileges. It is their democratic right. But they and no one else must never suffer the consequences and for their families of a collapse. We must do everything so that there is no freeze in payments.”

The Greek vote was greeted with relief in Europe’s capitals, which have been fretting about the impact of a potential Greek default both on their banking systems and on the future of the euro currency itself.

“That’s really good news,” German Chancellor Angela Merkel said when told of the outcome of the vote on her way out of an economic forum in Berlin. Germany is Greece’s biggest creditor.

EU leaders hailed the vote as an act of “national responsibility” and urged Greek lawmakers to follow up with another positive vote.

In a joint statement, the heads of the EU commission and council, Jose Manuel Barroso and Herman Van Rompuy, said Greece had taken “a vital step back - from the very grave scenario of default” and urged a second positive vote tomorrow to allow the next batch of money to be disbursed.

Equally, relief was the main response in markets. Soon after the vote, the euro was trading at a fairly elevated level around the 1.44 US dollar mark while stock markets around the world were posting big gains. In Greece, the main Athens stock market closed up 0.5 per cent at 1,264, while the country’s borrowing costs eased some 80 basis points from a morning high, with the yield on 10-year bonds settling at the still high 16.55 per cent.

However, even if Greece gets more bailout funds, many economists think the country will end up defaulting on its debts in some form or another. The unpopular package of spending cuts and tax hikes passed by 155 votes to 138, with five opposition deputies voted “present” – a ballot which backs neither side.

In a dramatic vote, socialist deputy Alexandros Athanassiadis, who had previously vowed to vote against the bill, backed the package, saying he had been swayed by the prime minister’s comments in parliament.