Athens wins confidence vote, amid yawning concern over political instability

Every MP with the governing centre-left Pasok voted to back the cabinet and every member of the opposition apart from two abstentions voted against, giving a result of 155 to 143 in the 300-seat chamber.

The rest of the eurozone and international lenders are now holding their breath until 28 June when the government, hit by a series of resignations and widening civil unrest, will attempt to push through an unpopular series of fresh austerity measures amounting to €28 billion as well as €50 billion in public asset sales.

The confidence vote came just hours after Fitch, one of the big three credit ratings agencies, declared that it will assess Greece as in default if private bondholders agree to even the softest of voluntary participation in any second bail-out of the country.

EU leaders hope to convince private creditors to roll over Greek debt as bonds mature in order to pare back the involvement of the public purse in a second rescue.

While Germany had demanded a more compulsory option, with creditors being asked to extend existing maturities by seven years, after objections from the European Central Bank and France, the eurozone appears to be achieving a consensus around the more voluntary plan.

Fitch however will have none of this, arguing that this would still technically mean that Greece is unable to pay its debts.

"Fitch would regard such a debt exchange or voluntary debt rollover as a default event and would lead to the assignment of a default rating to Greece," the agency's Asia-Pacific sovereign ratings chief, Andrew Colquhoun, told reporters in Singapore.

Separately, struck by what Eurogroup chief Jean-Claude Juncker has called a "rebellion" by the Greek people, European politicians have begun to hold out the carrot of boosting outside public investment in the country - so long as Athens does what is demanded, and approves the package of cuts and privatisation.

European Commission President Jose Manuel Barroso announced in an unscheduled speech that the EU should make an early delivery of €1 billion in already programmed structural funds to the country to catalyse growth.

"if Athens acts, Europe will deliver," he told reporters in Brussels. "I believe this is a time that calls for a more strategic use also of our European structural funds. And I think it is important to show to our Greek friends and partners that, yes, the way out is difficult but there is hope and there are solutions at the end of this path."

"This is the offer we should make to Greece. If the new government decides to go for this approach, I believe we should provide such assistance under tight supervision."

He said that such a move was necessary "so that Greek people become aware that there is hope and that we are not just asking them to make sacrifices."

Also on Tuesday, the Liberal group in the European Parliament argued that EU funds should be used to encourage growth in the country, but alongside sharper austerity with greater public-sector lay-offs.

The Alliance of Liberals and Democrats (ALDE) alongside its newest members, Greece's Democratic Alliance, a centrist breakaway from the centre-right Greek opposition party, unveiled its 'Hercules Plan' - a twin-track scheme of more cuts but more investment as well, which it aims to propose to the European Commission.

Reacting to the growing strikes, demonstrations and blockades across the country, Jean-Claude Juncker for his part on Monday held out the possibility of fresh European investment once the austerity had been completed.

Failed State Index

As the unrest spreads, with the country's main private sector union calling a fresh two-day general strike next week, the 2011 Failed States Index put out by the Fund for Peace and Foreign Policy magazine, noted that stability in Greece and the rest of the European periphery has deteriorated sharply.

The annual index, now in its seventh year and which measures the pressures on states pushing them towards the brink of failure, normally produces headlines deploring the instability in places such as Somalia and the Congo.

This year, the index included a chapter on 'Undeveloping States', describing Ireland and Belgium as "two of the 10 most significant declines [that] came in western Europe", and adding that "Greece was by far the poorest performer with respect to deterioration in the political indicators."

The index authors called the declines "a reminder that no country is immune to fragility."

Janis Emmanouilidis, senior policy analyst with the European Policy Centre and specialist in institutional structures, told EUobserver: "Greece is very far from a failed state. But it may be a weak state and one of my greatest fears is that there has been a loss of control by the government."

"Despite the fact that Greek democracy, at least this time around since 1974, is not that old, it is still a consolidated democracy," he continued. "People have a memory of 67-74 [a period of rule by military dictators] and very few people want to return to that. Some may argue that things were good under the Colonels and want to go back, but the number of people sympathetic to this perspective is very small."

"Some people have asked me behind closed doors whether Greece is close to civil war. There are individuals who fear this could happen," he added. "But democracy is too consolidated."

"This doesn't mean that democracy can't be affected, and we can see this there already, but it doesn't mean that democracy is in danger."