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Next for Greece: buying enough time to pay off debts

Greece's parliament approved an austerity package today. But if there's no agreement on restructuring debt payments, tensions are likely to rise anew in the fall.

Police use tear gas at Syntagma square in front of the Greek Parliament in central Athens on Wednesday, June 29.

Dimitri Messinis/AP

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The Greek parliament's approval Wednesday of an austerity package of spending cuts and tax hikes means the country will most likely receive the international loans it needs to pay off debts due July 15. But if agreement isn't reached on a debt restructuring, Greece and its international lenders will once again be at a standoff this fall.

The $142 billion bailout finalized in 2010 is being meted out in increments to keep Greece's reluctantly promised economic reforms, taxes, and cuts on track. Another portion of the loan is scheduled to be released in October, but there's nothing to prevent another protracted round of wrangling, particularly if lenders like Germany aren't convinced Greece is doing its all to cut spending and increase revenue.

"It's going to buy some weeks to think about the next round. It's going to give some breathing room," says Domenico Lombardi, a senior fellow at the Brookings Institution in Washington. That time will need to be used to set out a path for the more far-reaching program the Europeans are looking for.

Today's agreement also paves the way for the approval of a second IMF program that will extend until 2013 or 2014 and is designed to help Greece avoid default and to ease austerity measures. "The aim would be to ease the cost of adjustment of the Greek people," Mr. Lombardi says.

On Thursday, the parliament will vote on legislation to implement the austerity measures and remove legal obstacles to privatizing state assets, a key demand of European finance ministers. The privatization program could raise as much as $70 billion some day, according to The Washington Post.

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