Greek PM to reshuffle government to advance austerity plan

ATHENS Wed Jun 15, 2011 5:55pm EDT

1 of 13. A protester throws a stone at policemen during riots in central Syntagma (Constitution) Square June 15, 2011.

Credit: Reuters/John Kolesidis

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ATHENS (Reuters) - Greek Prime Minister George Papandreou said he will form a new cabinet on Thursday and seek a vote of confidence from his fractious Socialist party to see through a harsh austerity bill, the target of major protests.

The move followed a Papandreou offer to step down and form a unity government with opposition parties, a gesture he abandoned after the conservative New Democracy demanded Athens renegotiate its year-old, 110-billion-euro international bailout.

Analysts said the move might bolster Papandreou's drive to push through a new 5-year campaign of tax rises, spending cuts and sell-offs of state property to receive a new bailout and a 12-billion-euro aid tranche it needs to pay back debt by August.

Facing political rivals, resistance from within his own PASOK party and demonstrations by tens of thousands of Greeks in which some battled police in central Athens earlier in the day, Papandreou said he would appoint a new cabinet.

"Tomorrow I will form a new government and then I will ask for a vote of confidence," he said on Wednesday in a televised address after a day of street unrest and political turmoil.

"I will continue on the same course. This is the road of duty, together with PASOK's parliamentary group, its members, and the Greek people." Government sources said the vote of confidence could be held on Sunday.

Papandreou made clear he would not be seeking support from other parties but analysts said it was possible he would name politically unaffiliated experts to his new governing team.

New Democracy leader Antonis Samaras said the only way out of the crisis was early elections, but analysts said that would only occur now in the unlikely event that the government would fail to get a vote of confidence.

Papandreou not only faces public protests and resistance from New Democracy, which has surpassed his Socialist party in opinion polls, but a few backbenchers in his own parliamentary grouping are also threatening to reject the plan.

One PASOK deputy defected on Tuesday, reducing the party's number of seats in parliament to 155 out of 300. Another said he would oppose it, making what had once seemed a guaranteed result become less certain.

WIDESPREAD ANGER

Thousands of activists and unionists converged on Athens's central Syntagma square on the parliament's front steps to try to stop lawmakers from debating the austerity measures in committee that they hope to pass by the end of the month.

Stun grenades boomed around the square and plumes of smoke rose from burning garbage bins as police fired tear gas and fought running skirmishes with scores of youths who fought back with rocks and long clubs.

"We want them out. Obviously these measures are not going to get us out of the crisis," Antony Vatselas, a 28-year-old mechanical engineer, crying from tear gas. "They want only us to pay for it. And they are doing nothing. I want the debt to be erased. If this doesn't happen, there is no exit for Greece."

One group hurled petrol bombs and clashed with police at buildings housing the Finance Ministry, also on the square. Reuters witnesses saw flames in front of an entrance to the main building and a similar clash a few buildings down.

The vast majority of the crowd -- which included union workers, political party members, pensioners, and a wide array of Greeks upset at the new austerity measures -- only shouted at the parliament building and remained peaceful.

"Thieves, traitors!" many chanted. "Where did the money go?"

About 1,500 police closed a large part of the city center and created a corridor to hold back protesters as lawmakers drove up to the building in official limousines.

The health ministry said 33 people were injured. Fifteen people were arrested, police said. Police officials said the crowd reached around 30,000 but they often underestimate numbers.

The new austerity package foresees 6.5 billion euros ($9.4 billion) in tax rises and spending cuts this year, doubling the effect of measures agreed with bailout lenders that have jacked unemployment up to a record 16.2 percent and extended a deep recession into its third year.

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 public work force would be cut by a fifth. It also aims to raise 50 billion euros by selling off state-owned firms.

"CRUEL AS A TIGER"

On Tuesday, euro zone finance ministers failed ahead of a June 23-24 summit to reach agreement on how private holders of Greek debt should share the cost of a new bailout for Athens worth an estimated 120 billion euros.

The European Central Bank opposes such a move, saying that if such participation is involuntary it could be deemed default that could shock markets and put weaker euro states at risk.

The lack of agreement pushed Greek bond yields and the cost of insuring Greek debt against default to a new record high on Wednesday, while shares in Greek banks fell on fears of political uncertainty.

The PASOK deputy who defected said he could not back the package. "You have to be as cruel as a tiger to vote for these measures. I am not," George Lianis said in a letter to Parliament Speaker Filippos Petsalnikos on Tuesday.

Another PASOK member said he would vote against it.

But political analysts said Papandreou's offer of a unity government and subsequent vow to reshuffle his cabinet had probably scared PASOK deputies enough to bring them in line and win their support for the package.

"He probably wanted to put the fear of God in them and say if you don't support this government, then we go to elections," said Theodore Couloumbis of ELIAMEP think-tank.

"He will get a vote of confidence for the new cabinet and more than likely the plan is going to pass."

PASOK deputies also said after a meeting with Finance Minister George Papaconstantinou that they expected parliament to approve the plan after he offered to soften some of the measures that would hit poorer Greeks.

(Additional reporting by Yannis Behrakis, Ingrid Melander, Harry Papachristou, Renee Maltezou and Yiorgos Karahalis; writing by Michael Winfrey; editing by Mark Heinrich)

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