Europe kept the pressure on Greece to push forward with a painful austerity programme on Wednesday after Athens cleared the first hurdle in avoiding a sovereign default. European leaders congratulated Prime Minister George Papandreou on surviving a confidence vote but clearly wanted to keep the government's feet to the fire in the more difficult next stage - implementing reforms rejected by many of the population.
"There is no alternative. We have a plan, now it's time to act on it, it's time to implement it. There is no alternative. There is no Plan B," European Commission spokeswoman Pia Ahrenkilde-Hansen told a news conference. Chancellor Angela Merkel, leader of EU paymaster Germany, said Greece must more aggressively privatise state-run firms and boost tax revenues. She said the confidence vote was an important step but Greece must now push through the reforms
European Central Bank President Jean-Claude Trichet, head of a new financial super-watchdog, said warning lights were flashing red on the eurozone debt crisis. "The message is that it is the most serious threat to financial stability," he said in Frankfurt. Worryingly for Brussels and for markets, divisions again emerged among EU policymakers over how to involve private creditors in the next phase of the rescue, with Merkel telling lawmakers there was only limited support for Germany's position that the banks must do their bit.
Any suggestion that governments are forcing banks to help finance the bailout could be viewed by credit rating agencies as a Greek default or restructuring. That could trigger further catastrophic debt downgrades and suck in Europe's other weak economies.
The Greek cabinet on Wednesday approved draft legislation spelling out details of its new five-year austerity plan, which will now be submitted to parliament on Friday. The thousands of demonstrators chanting their anger on Tuesday night during the confidence vote illustrated widespread public opposition and the big challenges still facing the government.
Papandreou aims to get parliamentary approval for the package of spending cuts, tax hikes and state asset sales by June 28, and to implement it by July 3, to secure 12 billion euros ($17 billion) in funding from the European Union and IMF. Without the aid, Athens will plunge into default next month, sending shock waves through the global financial system. EU leaders meeting in Brussels on Thursday and Friday will discuss the next steps in supporting Greece although Merkel said she expected no concrete decision on more funding until Athens approved the package. The leaders are expected to make a political commitment to go on funding Athens for the next 12 months to convince the IMF to release the next tranche of loans in early July, once the fiscal package is implemented.