Greek PM reshuffle plan in doubt as deputies quit



Athens: A string of parliamentary resignations threw Greek Prime Minister George Papandreou's plan to reshuffle his cabinet and seek support for a crucial austerity package into disarray on Thursday.

Greece risks bankruptcy if it fails to pass the government's highly unpopular five-year plan for tax hikes, spending cuts and state property selloffs demanded by international lenders in return for a second bailout.

Two lawmakers in Papandreou's ruling socialist party stepped down on Thursday but were expected to be replaced by other party members from their constituencies, so the resignations should not affect parliamentary numbers.

But Greek analysts and media said it was increasingly unclear whether Papandreou would be able to form a cabinet and get the measures approved amid the political disarray, which follows nationwide strikes and violent protests in Athens.

"It will be very hard now to find good people to form a government now. They don't trust (Papandreou) after all the flip-flops he has made," said former finance minister Stefanos Manos. "Who will make privatisations now in all this turmoil?"

Athens may get some reprieve after euro zone sources said the International Monetary Fund was expected to pay its share of Greece's latest aid tranche quickly to buy the EU more time to finalize a package to keep Greece afloat through 2012 and beyond.

Papandreou's reshuffle reflects the unpopularity of the austerity measures and follows the failure of talks over a unity government on Wednesday that roiled markets and raised fears efforts to solve the euro zone debt crisis could collapse.

The new governing team is expected to face a confidence vote late on Tuesday, a parliamentary aide told Reuters. With 155 of the chamber's 300 seats, the ruling PASOK party is currently expected to approve it.

World stocks hit a three-month low on Thursday, the euro slumped to a one-month trough and top-rated government bonds rose as concerns intensified that the lack of a deal on Greece's debt might trigger more market turmoil.

Papandreou may seek to replace his finance minister, George Papaconstantinou, the main architect of hugely unpopular budget cuts demanded by the EU and the IMF as part of Greece's 110 billion-euro bailout last year.

Former ECB Vice-President Lucas Papademos is most frequently mentioned as a candidate to replace Papaconstantinou, who local media have said may be on his way to the Foreign Ministry.

Papademos's office said he was out of the country on Thursday and not available for comment.

AUSTERITY

Tax rises and spending cuts worth 6.5 billion euros ($9.4 billion) are planned this year, doubling already agreed measures that have driven unemployment up to a record 16.2 percent and extended a deep recession into its third year.

The European Union and International Monetary Fund have demanded the new 5-year austerity plan as a condition of releasing the next tranche of 12 billion euros in aid Athens needs to pay back debt that matures in August.

"I can't believe they are doing this (political wrangling), with all the money they are being offered," a European central banker told Reuters on condition of anonymity.

The plan includes new luxury taxes, a crackdown on tax evasion and tax rises on soft drinks, swimming pools, restaurant bills and real estate. The euro zone member's 750,000-strong state workforce would be cut by a fifth. It also aims to raise 50 billion euros by selling off state-owned firms.

Some Greek media said Papandreou's failed effort to create a unity government had sown confusion that could destabilize his administration.

"Papandreou behaved with eccentricity and created a chaos without precedent," the daily Kathimerini said in an editorial.

The political machinations and international haggling over the terms of a second bailout have battered bond markets, and the cost of insuring Greek debt against default soared to yet another record high on Thursday.

Greek conservative opposition leader Antonis Samaras said the only way out of the crisis was early elections, but analysts said that would only happen in the unlikely event that the government failed to get a vote of confidence.

"I think that Greek politicians are mature enough and will vote for the mid-term plan," said Gikas Hardouvelis, chief economist at EFG Eurobank. "What they don't have is the maturity to implement the hard austerity measures that it includes."

Bureau Report

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