Greek PM announces government reshuffle

Wednesday 15 June 2011 20.09
1 of 2
George Papandreou - Reshuffle announced
George Papandreou - Reshuffle announced
Greece - March on parliament over new measures
Greece - March on parliament over new measures

Greek Prime Minister George Papandreou tonight announced a government reshuffle after sweeping anti-austerity protests in Athens ahead of a key vote on new belt-tightening reforms.

'Tomorrow I will form a new government and will immediately ask for a vote of confidence in parliament,' Papandreou said in a televised address. 'I will continue on the same road, the road of duty,' he said.

The prime minister did not indicate the extent of the reshuffle, which comes as the government prepared to push through parliament a controversial new wave of cuts required to clinch another EU-IMF bailout for debt-hit Greece.

The Greek government is trying to push through parliament a new austerity package worth more than €28 billion demanded by Greece's creditors in return for a badly-needed new aid bail-out. But its political opponents have pledged to oppose the plan.

Tens of thousands of people demonstrated today outside parliament against the ongoing austerity cuts as a general strike crippled services.

At least a dozen people were injured in clashes between stone-throwing youths and police on the sidelines of the protest.

Greece has warned it will be unable to pay next month's bills without a €12 billion loan instalment from the EU and the IMF, part of a broader €110 billion bail-out package agreed last year.

But the creditors have warned that no more aid will be forthcoming without firm reform commitments from Athens.

The latest austerity package comprises €6.5 billion in tax hikes and spending cuts this year, doubling measures agreed earlier that have pushed unemployment to a record 16.2% and extended a deep recession into its third year.

The plan includes: new luxury taxes; a crackdown on tax evasion; tax hikes on soft-drinks, swimming pools, restaurant bills and property; and cutting the state's 750,000-strong public work force by a fifth.

With those and other measures worth total savings of €28 billion up to 2015, it also aims to raise €50 billion by selling off state-owned firms.

Last night, euro zone finance ministers failed to reach agreement on how private holders of Greek debt should share the cost of a new bail-out worth an estimated €120 billion before a June 23-24 summit.

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.

S&P downgrades Greek banks

Standard & Poor's rating service downgraded its long-term credit ratings on four Greek banks to CCC from B just days after slashing debt-stricken Greece's sovereign rating by three notches.

S&P said the downgrade of banks NBG, Eurobank EFG, Alpha and Piraeus reflected the view that faced 'significantly heightened risks to their financial profiles, particularly in terms of their liquidity from domestic retail operations and their capital positions.'

The agency noted that Greek depositors were increasingly withdrawing money from the banks, with an outflow of €13 billion in the first three months of 2011 compared to €28 billion for all of 2010.

S&P expressed concern that Greek banks have resorted almost exclusively to the European Central Bank for funding, reflecting 'severe difficulties in accessing wholesale funding in the last few years,' a statement said.

The banks were 'directly and significantly exposed to Greece's deteriorating credit-worthiness through their large portfolios of Greek government bonds,' it added.

On Monday, S&P's slashed Greece's sovereign debt by three notches to CCC, saying there was a significantly higher probability of a default in the struggling euro zone member.

S&P analysts said that the exact effect on Greek banks of a sovereign debt restructuring would largely depend on the nature of the solution hammered out by European leaders.