ATHENS (Reuters) - Greek Prime Minister George Papandreou will name a new cabinet Friday to muster support for painful economic reforms, despite public unrest and a split in his party that could push the country closer to default.
He is likely to jettison Finance Minister George Papaconstantinou, author of a belt-tightening program that has fueled public anger, national strikes and a violent demonstration this week on the steps of parliament.
He delayed announcement of the new team late Thursday in what looked like a signal he was struggling to find a suitable person for the key financial post.
The political upheaval has pounded markets and drawn criticism from other European Union states, where policymakers dithered over how best to keep funding Greece and forestall a “credit event” that could cause global economic havoc.
Three deputies have quit from Papandreou’s Socialist Party in as many days in protest at a five-year, 28 billion euro ($39.59 billion) austerity package that the European Union and International Monetary Fund have set as a condition for more aid.
Two of the three abandoned Papandreou Thursday following a failed bid to form a ruling coalition with the conservative opposition, but they will be replaced with party loyalists, leaving his thin parliamentary majority intact.
The protests against the measures, which include plans to raise 50 billion euros through privatizations, have combined with political infighting and euro zone indecision to severely spook international markets.
Analysts said even if the new government managed to win a confidence vote slated for Tuesday and passed the new reforms, chances they would be able to effectively rein in a 340 billion euro debt load were diminishing.
“If the political and social problems continue to deepen, then market pressures for a more immediate resolution to the crisis will build,” Capital Economics wrote in a note.
“And even if the pressures subside and some form of agreement can be reached next month, it seems very unlikely that this will amount to a decisive solution to Greece’s fundamental economic and fiscal problems.”
World stocks hit a three-month low Thursday, the euro fell into a one-month trough and safe haven German government bonds rose as concerns intensified that the lack of a deal on Greece’s debt might trigger serious global market turmoil.
The White House said it was monitoring the situation and that the Greek debt crisis was a headwind to the U.S. economy.
In a statement intended to soothe markets, the European Union’s top economic official, Olli Rehn, said he expected the EU and IMF to release a crucial 12 billion euro ($16.97 billion) loan tranche in early July to keep Athens afloat.
But in Athens’ central Syntagma square, protests dragged into their third week in front of parliament.
“I believe it would be a good thing to exit the EU/IMF memorandum and return to the drachma. One thing is certain, these measures are not getting us anywhere, said 26-year-old Nicos Chrysanthopoulos, who is unemployed.
Additional reporting by Renee Maltezou; Editing by Barry Moody and Mark Trevelyan