ATHENS, Greece — Greece's embattled prime minister faced a crucial confidence vote in parliament Tuesday over the new cabinet he formed to help pass the unpopular austerity measures needed to avoid a national default.
If Prime Minister George Papandreou's new government fails to get the necessary Parliamentary support in a midnight vote Tuesday, it would throw into question whether it can pass a new austerity bill by the end of the month as demanded by international creditors.
Expectations that Papandreou would win lifted world markets. His Socialist party holds a five-seat majority in the 300-member legislature, and a simple majority is needed to pass.
"Indications over the last 24 hours or so have certainly been that the government will survive, if only because the alternative would be so dire," said Beat Siegenthaler, an analyst at UBS.
"I will back the confidence vote — but I won't give a blank check," said Socialist lawmaker Panagiotis Kouroumplis.
Without parliamentary approval for the Cabinet and the new measures, Greece will not get the next €12 billion ($17 billion) installment of its €110 billion ($157 billion) bailout from the European Union and the International Monetary Fund — funds the country needs by mid-July to avoid default.
A default by Greece could spark a financial maelstrom around the world, dragging down Greek and European banks as well as stoking renewed fears over the finances of other eurozone countries, such as Portugal, Ireland and Spain.
Protesters planned to rally outside parliament ahead of the confidence vote, and Greeks faced rolling power cuts Tuesday by striking workers at the state power company, which is up for privatization.
If he loses Tuesday night, Papandreou will have little choice but to call early elections — or try to form a coalition government. However, all opposition parties have said they want elections.
But even after winning, he faces an even more difficult task: Getting parliament to back €28 billion ($40 billion) worth of spending cuts and tax hikes as well as an unpopular €50 billion ($71 billion) privatization program by the end of the month.
If the new austerity measures pass, the finance ministers of the 17-nation eurozone will meet July 3 to give Greece its next bailout installment.
Papandreou was forced to reshuffle his cabinet last week amid strong resistance from his own party to the austerity measures and the collapse of talks to form a coalition with the conservative opposition. He replaced his finance minister, appointing Evangelos Venizelos, the former defense minister.
Greece's European creditors and the IMF are also pushing for Greece's main opposition party to support the austerity measures, which have already sparked violent street protests. But Conservative leader Antonis Samaras says Greece's bailout deal should be re-negotiated and has called for cutting taxes to reinvigorate the economy and lift Greece out of recession.
Venizelos spoke with Samaras on Tuesday, and his office released a statement saying Samaras understood the government's need to stick to the timeline agreed by the eurogroup regardless of the opposition's position on the measures.
A key requirement from the eurozone and the IMF is that Greece steps up its privatization drive.
European officials are also discussing a second, similar-sized bailout for Greece as it has become evident that Greece won't be able to return to the bond markets and raise money to pay creditors any time soon.
"I trust that the new Greek government will receive the confidence of parliament," European Commission President Jose Manuel Barroso said after meeting Monday with Papandreou, but added the crucial vote was the one on the new austerity package.
"I therefore trust that Greece's elected representatives will back these measures next week in a spirit of national and indeed European responsibility," Barroso said. "These choices are not easy, but nor are the problems that need to be addressed. Now is not the time to falter."
While Greece has been locked out of the international market by exceptionally high interest rates demanded for its 10-year bonds, it has continued to issue shorter-term debt in the form of treasury bills.
On Tuesday, it raised another €1.625 billion ($2.3 billion) but had to pay an interest rate of 4.62 percent for investors to part with their cash for just 13 weeks, up from 4.06 percent at an equivalent auction a month ago.