Forex News – Greece risks losing bailout if government loses confidence vote

Important: This page is part of archived content and may be outdated.

There was brief relief after plans for a Greek referendum were shelved yesterday, however today there is tension rising as the Greek government is put to a confidence vote.

The Greek Prime Minister George Papandreou is struggling to hold on to power as his chances of gaining a majority vote is being diminished by defections from his cabinet. If his government loses the confidence vote, then Greece will likely head to a general election which could deepen the crisis and delay the next bailout, bringing Greece back to “square one”.

“One option I consider catastrophic would be to go to elections, Parliament would shut down, we would sink into conflict and polarizations,” Papandreou said. “It is doubtful we would reach the end of elections without going bankrupt and having lost time.”

The prospect of a vacuum in the Greek government is causing concern in other European capitals including Berlin and Paris, where the opposition leader, Antonis Samaras is viewed as an unpredictable populist who may not stick to Greece’s tough austerity program.

Papandreou’s inability to resolve the political gridlock pushes the country closer to the first default by a European Union nation even as his scrapping of the referendum averted potential ejection from the 17-member euro zone. European Commission President Jose Barroso called for “national unity,” saying Greece is on the verge of running out of funds.

“There’s a real danger of a disorderly default,” billionaire investor George Soros said in a speech in Budapest. Without support for Greek lenders, “you’re liable to have a run on the banks in other countries as well. That’s the danger of a meltdown.”

The confidence vote is expected as late as midnight local time. (2200 GMT)