Athens Erupts in Riots During Key Austerity Vote

Athens erupted in riots late Wednesday as parliament met to vote on the latest austerity measures needed to win more international aid.

Athens Erupts in Riots During Key Austerity Vote
Louisa Gouliamaki | AFP | Getty Images

Smoke and tear gas filled the streets just as parliament struggled to forge a consensus on the new austerity plans. Meanwhile, workers were winding down a two-day strike to protest the budget-cutting moves designed to reduce Greece's crushing public debt burden.

Dozens of workers in Greece's parliament walked off the job, interrupting a heated debate on a package of cost cuts, tax hikes and labor reforms Athens must pass to receive badly needed aid.

The parliamentary workers exited the assembly in protest against salary and benefit cuts included in the 500-odd page draft law under discussion in the chamber.

Greece's cash-strapped government needs 151 of 300 members of parliament (MPs) to vote in favor of the bill on austerity measures for 2013-16 – measures that were agreed to with international lenders following a torturous 40 day negotiating marathon.

Should the vote fail, Greece will not receive its next financial aid installment—31.5 billion euros ($40.2 billion)—on Monday. That could plunge the Hellenic republic deeper into a financial abyss, and may hasten the long-feared scenario of a euro zone exit, which some analysts call a 'Grexit'.

Athens' struggles come at an awkward time for the euro zone as a whole. Earlier on Wednesday, the European Commission said the 17-nation currency bloc will see scant growth next year, as a slowdown spreads to each of the euro club's biggest economies. That may erode public support — which is already waning — for giving Greece more money.

"If the Greek parliament fails to approve the fiscal package this will put Grexit back on the investors' radar screens and fuel risk aversion weighing on risk-correlated currencies and boosting safe haven currencies like the U.S. dollar and Japanese yen, " Valentin Marinov, director of currency strategy at Citi, said. He forecast that the euro could continue to fall against the dollar if the bill doesn't pass.

While the coalition government which took power in June has 175 MPs in total—127 New Democracy, 32 Pasok, 16 Democratic Left—some of the MPS from its junior partners Pasok and Democratic Left are increasingly restive.

The Democratic Left have said they plan to vote against the measures, because of reforms to the labor market, as have several Pasok MPs, bringing the government's majority into dangerous territory.

As it stands, the bill looks to have the backing of 154 MPs, but it would take just a few MPs from Pasok, traditionally New Democracy's greatest rivals, to tip the balance the other way.

Wednesday's vote is also an early signal of how MPs may vote on the new budget, which is put to the vote on Sunday.

The market is expected to move towards a more risk-on mode if the bill passes, according to strategists at Lloyds, who expect it to be approved with a very slim majority. They forecast that if the bill passes, safe haven 10 year German Bunds should move above 1.5 percent.

"Today is one of those future-defining days," they wrote in a research note.

—By Catherine Boyle and Javier E. David.

Reuters contributed to this report.