Greece budget vote: A Pyrrhic victory

The difficult course has been set - but how closely will Greeks stick to it?

ATHENS Sometimes at a concert the audience leaps to its feet as the last note has scarcely died away. An explosion of applause engulfs the performers.

The Greek parliament had only just voted in favour of the new austerity package when the German Chancellor Angela Merkel was shouting "bravo!" from Berlin. She showered praise on Greek MPs for their "brave" vote. She praised the decision as "an important step for the stability of the eurozone".

The President of the European Council, Herman Van Rompuy, was on his feet too. "The country," he said, "has taken an important step forward along the necessary path of fiscal consolidation and growth-enhancing structural reform.

"But it has also taken a vital step back - from the very grave scenario of default."

And so gradually the sigh of relief echoed around Europe's capitals. A "no" vote in Athens could have led to a Greek default in mid-July and a potential unravelling of the eurozone - although that threat was probably exaggerated. But Europe's leaders were more anxious than they made out.

There is a second vote today on changing the law to implement the austerity plan. The individual measures will be voted on.

After yesterday's result it is hard to see the maths changing, although there are some government supporters who disagree with tax increases for some of the lowest paid.

Then on to Brussels at the weekend, when Greece will formally be loaned 12bn euros (£10.7bn) to stave off bankruptcy in the short term. After that there will be a meeting on 11 July to discuss a second Greek bail-out. Much of that has yet to be agreed. The amount will be close to 120bn euros, but we don't know the extent to which the private sector (banks, investment funds etc) will contribute.

Battle won, campaign continues

Parliaments in Finland and the Netherlands may try and attach conditions to a second bail-out.

But the expectation is that time will have been bought. The short-term crisis will have been survived and Europe's leaders will head for the beaches and mountains, secure with a victory of sorts.

The people of Greece, however, remain sullen and resentful.

Sure, the unions did not get the numbers on the streets they had promised. Some were fearful of violence; others were protest-weary. There are those who say that Greece needs a revolution to catapault it into the modern world. They applaud moves against tax evasion, against pensions paid out to the long-departed, against the pervasive corruption, against the jobs reserved for relatives, against the retirement deals, against the crony-based political system that is at the root of the problem.

"The problem for [Prime Minister] Papandreou is not in parliament," says Costas Panagopoulos, the head of ALCO pollsters. "It is what is happening outside parliament: not in Syntagma Square, which is just a few hundred protesters, but with the whole of Greece's 11 million people."

The majority of the Greek people are unconvinced by a plan dictated by outsiders. In almost every conversation I have had on the streets the same view emerges: Greeks believe the bankers caused the crisis and that they, the ordinary people, are picking up the bill. The narrative may be flawed, but it won't easily disappear.

The country is divided. The opposition has said clearly that austerity is strangling growth and without growth there is no way that Greece can pay down its debts, if at all.

The mood will darken as unemployment rises. Last year 400,000 jobs were lost.

I met Elias Iliopoulos, the General Secretary of the civil service union Adedy. Yes, the government would approve the measures he said, but they would never be fully implemented. We found that mood time and time again. The reforming zeal would slacken. The old ways would return. The debt mountain - currently at 340bn euros - would head inexorably upwards to 500bn euros.

Hurdles lie ahead. Greece must sell off 5bn euros of state assets by the end of the year. It is a condition set by the EU and IMF. Success is not guaranteed. Each move will be met by resistance and strikes.

For the government and its supporters there is relief today - but then what?

The most fundamental questions remain:

Will further austerity work? Where will growth come from? Will the structural reforms change Greek culture? Will workers effectively block the privatisations?

Nothing is sure. All that has happened is that a default has been avoided at a moment when Europe's banks are still vulnerable. In two years' time they may be more robust.

After all the rioting and protests the most likely outcome is an orderly Greek default further down the road. The only question is whether the banks will take the hit or Europe's taxpayers.

The Greek government has notched up a Pyrrhic victory.