After an epic political effort to pass another harsh austerity program into law, Greece faces still more tests to secure a new financial bailout as its euro-zone partners press for swift implementation of the new budget cuts in the face of intense popular opposition.
European financial markets responded with modest gains early Monday after Greece got a step closer to receiving a second rescue package to avoid defaulting on its debts next month.
A next big step in the cluttered approval process for the aid package is a meeting of euro-zone finance ministers, tentatively set for Wednesday, to sign off on cuts contained in Greece's austerity legislation to clear the way for the €130 billion ($171.59 billion) aid deal. A final decision on the new bailout isn't expected until March.
The euro rose against most of its major trading currencies. European stocks opened broadly higher and the cost of insuring euro-zone government debt against default eased. But market watchers remained cautious.
"There is no cause for major relief: In effect parliament only decided not to denounce further aid payments at this stage," Commerzbank foreign-exchange analysts said in a note Monday. In particular, the analysts worried whether there would still be the political will to follow through on reforms when Greece gets a new government after fresh elections, which could come as early as April.
As thousands of protesters clashed with riot police outside, the Greek parliament overnight approved a deeply unpopular package of spending and wage cuts to fill demands set by the European Union and the International Monetary Fund for more aid.
The package passed by a 199-74 vote, despite defections from the government ranks in the days leading up to vote. The two largest Greek parties—the socialist Pasok and conservative New Democracy—backed the measures, which include cuts in the budget, pensions and the minimum wage.
The Wednesday meeting of euro-zone finance ministers could coincide with the release of a revised assessment of Greece's debt sustainability, followed by the resumption of talks between Greece and its private-sector creditors to write 50% off the face value of their Greek bondholdings. A number of euro-zone parliaments, including Germany's, would then have to sign off on further aid before it can be paid out.
Germany's parliament will only vote on a second Greek bailout package after Athens' official lenders—the EU, the IMF and the European Central Bank, known as the troika—have presented their report on Greece's debt sustainability.
"We expressly welcome the decision of the Greek parliament," Chancellor Angela Merkel's spokesman said, adding the vote shows how Greece is able to take difficult measures.
Yet despite Sunday's vote, euro-zone finance ministers are expected to make a final decision on the €130 billion second rescue program only in early March, finance ministry spokeswoman Marianne Kothe said.
Furthermore, a written statement from the leading Greek political parties to support reform pledges after coming elections remains another prerequisite for the approval of further aid, she added, with ministers Wednesday evaluating the significance of the exit of the small, separatist Laos party from the government.
German Economics Minister Philipp Rösler Monday kept up the pressure on Greece to follow through with budget reforms in the face of social unrest.
"We took a step in the right direction, but are still far from the goal," Mr. Rösler told Germany's ARD television channel. "The implementation of structural reforms is crucial."
he vote by Greece's parliament wa a "crucial step" toward winning a second bailout program from its European partners, European economics affairs Commissioner Olli Rehn said Monday. However, Mr. Rehn said there is still further work to do for the new bailout package to be agreed.
"Yesterday's vote is a crucial step…toward the adoption of the second program," he told reporters. "I am confident that the other conditions, including…the identification of the concrete measures of the €325 million will be completed by the next meeting of the Eurogroup, which will then decide on the adoption of the program."
Greek political leaders last week refused to sign up to pension cuts, but identified measures to find alternative savings. However there was a €325 million shortfall they must still fill.
Mr. Rehn warned against Greece leaving the common currency: "[A] Disorderly fault of Greece would be a much worse outcome, with devastating consequences for society," he said, "especially [for] the weakest members."
In the aftermath of the angry clashes in Athens before the vote Mr. Rehn said: "I also wish to join my voice to the Greek government in condemning the violence that took place yesterday in Athens," which is in no way representative of the Greek population as a whole, he added.
Speaking shortly afterward, Mr. Rehn's spokesman said Greece's political party leaders still needed to give clear commitments that they will stick to the austerity measures agreed after an coming election.
"We expect to receive clear assurances from political party leaders before they embark on the political campaign for next election," spokesman Amadeu Altafaj Tardio said.
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