Osborne bleak on Greece prospects

Euro rises after Greek PM George Papandreou wins key confidence vote late last night

THE chancellor, George Osborne, has given the cabinet a deeply pessimistic briefing on the outlook for Greece, City A.M. has learned.

Osborne told senior colleagues, including the Prime Minister David Cameron and foreign secretary William Hague, that the situation in the stricken country was “very serious” at a cabinet meeting yesterday morning.

City A.M. understands the chancellor offered little hope that the Eurozone would be able to find a solution to the worsening crisis.

The chancellor’s comments come a day after Mark Hoban, the Treasury minister, refused to say whether the government thought the euro would survive the sovereign debt crisis during a Commons debate.

Osborne reiterated that the UK government would not contribute to any kind of Eurozone-led bailout, although it could be forced to stump up its share of any further loans from the IMF.

The chancellor’s downbeat outlook comes despite Greece being granted a temporary reprieve last night as Prime Minister George Papandreou won a knife-edge no-confidence vote in parliament, enabling Athens to press ahead with an austerity programme that is a condition of its rescue funds.

Papandreou avoided a catastrophic defeat on the back of his slim majority in parliament, with his ruling Socialist party narrowly defeating the alliance of far-left and centre-right parties by 155 votes to 143, with two abstentions.

The euro rose as high as $1.4435 immediately following the vote, after falling earlier in the day.

But Greece’s political troubles are far from over. Parliament will now spend the next week debating the €28bn (£24.8bn) of additional budget cuts that it must pass on 30 June in order to qualify for its next €12bn tranche of aid from the IMF and EU.

If it does not receive the aid, which is part of the €110bn bailout it was promised last year, the sovereign will go bankrupt in July.

Markets saw a relief rally throughout the day on the expectation of a victory for Papandreou, with the FTSE 100 closing up 1.44 per cent, the Eurostoxx 50 gaining two per cent, the Dow rising 0.9 per cent.