Greece: Is A Second Bailout A Done Deal?

Whew! Greek Prime Minister George Papandreou must have breathed a sigh of relief when his cabinet avoided a no confidence vote yesterday. Out of the 300-member Parliament, 155 voted in favor of the current government while 143 gave it a thumbs down. Only 2 abstained.

Had there been more politicians who voted ‘nay’ instead of ‘yay,’ yesterday’s confidence motion would have resulted to… well, no confidence and led to a failed government in Greece. Good thing all of Papandreou’s home boys (and girls) from the ruling Socialist Party showed him some love and raised their hands in favor of his continued rule.

The government’s proposed austerity measures have ruffled the feathers of the Greeks and resulted to the call for confidence. A few giddy market junkies say that with the majority of the Parliament showing support for the government, it seems like Papandreou won’t have any trouble passing on the budget next week. After all, it wouldn’t be rational for those 155 Parliament members to reject the budget proposal of the government that they themselves voted for.

Effect of Greece vote on EUR/USD

In anticipation of a positive result, the bulls already started buying up the euro ahead of the final vote count. EUR/USD had started the day at 1.4300 and had risen as high as 1.4434, but eventually gave up its gains when results came in. It seemed that it was a classic case of “buy the rumor, sell the news.”

While it looks like the vote of confidence will continue to provide support for the euro in the short-term, Greece still faces a lot of obstacles. To get another aid package from the European Union (EU) and International Monetary Fund (IMF), the Greek government must first pass a 28 billion EUR austerity program. Papandreou might have secured enough votes to keep his seat, but anything can still happen and some politicians may say ‘nay’ the next time around.

Passing budget cuts and tax hikes may sound easy and ideal, but implementing them is actually very difficult. In Greece, riots and protests are aplenty as protesters show opposition to the government’s austerity measures.

Don’t get me wrong though, I think the vote of confidence is a step in the right direction. All I’m saying is that we should be very careful in being too optimistic. How many times have we heard “all is well” in Greece only to see the euro to drop the following day on bad news?

The fact is, there is still a lot of work to be done. For now, all we can do is hope… Hope that Greece manages to come out of this in good shape.

  • Joshua Pearce Gibson

    The Greek government is quite literally caught between a rock and a hard place. They can either a) push through the austerity measures, which will grant them the next bailout tranche, and keep their finances intact(for a little while), or b) reject the measures and default(very shortly). a) results in receiving the next tranche, but at a cost of delivering yet another crushing blow to an already devastated and hurting economy, and further spreading discontent among the Greek people, which could lead to even more violent protesting, and longer strikes across more organizations. It’s very difficult to plug money holes and collect tax income when everyone is burning Athens to the ground instead of going to work(assuming they even still have a job). b) results in an outright default, and brings the debt contagion fears to life, and further defragments the EU. Considering the light default that just quietly took place in an Irish bank, I don’t think this is what anyone wants either. All I can say is I’m glad I’m not a Greek politician. It’s kind of lose-lose.