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Greece prepares to slash budget after confidence vote

By the CNN Wire Staff
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Protests as Greece tries to repay debts
  • Papandreou's government survives a confidence vote
  • A former British finance minister warns that a Greek default would affect Europe and the United States
  • EU chief says Greece has "no alternative" to austerity plans
  • Greece plans to raise taxes, cut pensions and sell off assets as part of a bailout

Athens, Greece (CNN) -- Greece is set to press ahead with new taxes, public-sector job cuts and the sale of everything from airports to gaming licenses after Greek Prime Minister George Papandreou narrowly survived a confidence vote early Wednesday.

Papandreou is planning to cut 150,000 government jobs, slash the salaries of those who keep their posts, and slap new taxes on property, yachts and swimming pools.

He's trying to win confidence from international lenders in order to get a second bailout package to keep the government from defaulting on debts.

But the austerity package is very unpopular. Weeks of protests forced Papandreou to shuffle his cabinet last week, leading to the confidence vote, which he won 155-143.

European markets were slightly down Wednesday morning, though it was not clear if that was in response to the Greek vote.

International lenders have demanded Greece cut spending, lay off public workers, increase taxes and raise 50 billion euros ($71 billion) through selling off state-owned enterprises in exchange for another bailout deal for the cash-strapped nation.

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We need Greece to deliver, and if Greece wants this program of support, Europe is ready to support it.
--European Commission President Jose Manuel Barroso.

Analysts warn that a Greek default could cripple the euro, the European Union's common currency, and send shock waves throughout the world economy.

"If Greece were to default, I think the idea that you could contain that would be fanciful," former British finance minister Alistair Darling told CNN Wednesday.

"It's a bit like saying, 'Let's let Lehman's go bust again and wait and see what happens," he said, referring to the investment bank that collapsed in 2008, adding fuel to the global recession.

An acute crisis in Greece would lead to a chain effect that "probably wouldn't stop in Europe," he warned. "It would have a feedback to American banks and so on."

Greek lawmakers are slated to vote on the privatization plan and further tax increases, pension cuts and layoffs on June 30, and European Commission President Jose Manuel Barroso warned Greece risks being abandoned by both Europe and the International Monetary Fund if it fails to act.

"There is no alternative to this program. Let's face it," Barroso told CNN on Tuesday. "And that's why it has to be clear. We need Greece to deliver, and if Greece wants this program of support, Europe is ready to support it."

Greek Finance Minister Evangelos Venizelos said Tuesday he was encouraged by support he received from main opposition leader Antonis Samaras on the austerity plan, which Venizelos said he would take to Eurogroup ministers July 3.

Harsh reforms designed to help reduce Greece's enormous budget deficit have so far led to tax hikes and public-sector job losses alongside already record-high unemployment. Papandreou faces opposition from within his own ruling socialists over the austerity measures.

Airports, highways and state-owned companies as well as banks, real estate and gaming licenses will all go on the auction block.

On June 9, the Cabinet approved a tough five-year plan for 2011-15 and introduced a bill in Parliament to put austerity measures into effect. The government proposes reducing the public-sector workforce by 150,000; workers will also face changes in working hours, practices and wages, and the plan also sets out changes to social benefits, including pensions and unemployment aid.

Protests against those plans turned violent June 15 as demonstrators threw gasoline bombs at the Finance Ministry and police fired tear gas at protesters, police said. But Papandreou did not change course, telling lawmakers over the weekend, "The government must stop spending more than it takes in."

According to the Finance Ministry, these measures will help achieve 28.3 billion euros ($40.5 billion) in cuts from 2012 to 2015 and shrink Greece's public deficit to less than 3% of gross domestic product, in accordance with the EU target.

CNN's Diana Magnay and Richard Allen Greene and journalist Elinda Labropoulou contributed to this report.