Greek PM George Papandreou to unveil new cabinet

Protesters run away from tear gas canister and a burning barricade during clashes with riot police in Athens' central Syntagma (Constitution) Square, 15 June 2011 Anti-austerity riots rocked Athens on Wednesday

Greek Prime Minister George Papandreou is set to announce a new cabinet in a concessionary move as he seeks support for new austerity measures.

Mr Papandreou, who will stay in his post, says he will put the cabinet to a vote of confidence in the parliament.

Renewed fears that Greece will default on its debt have shaken markets.

Greek ruling party deputies are holding an emergency meeting of their parliamentary group to discuss the current crisis.

President Karolos Papoulias has urged Greek politicians in a statement not to make matters worse by turning the economic crisis into a political one.

The proposed measures are necessary to gain EU and IMF aid, but have been met with fierce opposition in Greece.

Athens witnessed some of the most violent protests in more than a year on Wednesday as demonstrators went on to the streets and took part in a general strike.

A confidence vote in the new cabinet is expected on Sunday, reports say.

"The discussions on the vote of confidence will begin on Sunday evening and will be completed by midnight on Tuesday," a parliamentary aide, who declined to be named, told Reuters news agency.

MPs' resignations

Mr Papandreou had also faced the threat of a revolt in his socialist Pasok party over the controversial package.

Start Quote

The EU leaders are at loggerheads over the issue: should Greece be allowed to do a soft, controlled, partial default on its debts which forces banks and pension funds to lose some of the money they lent to Greece?”

End Quote Paul Mason Economics editor, BBC Newsnight

On Thursday, Greek government MP George Floridis resigned in protest at the austerity plan. He was followed shortly afterwards by Ektoras Nasiokas, another Socialist MP.

Earlier this week, another Socialist MP defected, leaving the party to sit as an independent.

The resignations do not affect the party's five-seat parliamentary majority as the seats are automatically allocated to the next Socialists in line, but they are an indication of the difficulties Mr Papandreou faces in winning confidence in his leadership, says the BBC's Malcolm Brabant in Athens.

The IMF is expected to pay the next tranche of Greek aid of 12bn euros ($17bn) on the basis of a promise of future EU funding rather than any concrete commitments.

This would give the EU more time to finalise a package to help Greece.

Assuming that some form of Greek government emerges out of the political discussions now under way in Athens, it is now almost certain that Greece will get the official money it needs to stay above water a few more weeks, notably the next tranche of last year's EU-IMF bailout, says the BBC's economics editor, Stephanie Flanders.

All the eurozone ministers have to do is agree in principle to fill the funding gap in the Greek economic programme, which they will now do on Sunday, adds our correspondent.

Eurozone finance ministers will decide on a new bailout in July, according to EU Economic and Monetary Affairs Commissioner Olli Rehn.

"I am confident that next Sunday, the Eurogroup will be able to decide on the disbursement of the fifth tranche of the loans for Greece in early July. And I trust that we will also be able to conclude the pending review, in agreement with the IMF," he said in a statement.

Such an approach "means that the funding of the Greek sovereign debt can now be ensured until September, while we take the decisions for the medium term, beyond September, in July", he added.

This is a critical month for Greece, our correspondent says. It has very little money left in its coffers and will literally run out of cash in July unless it receives the next tranche of money from the first bail-out which was agreed in May 2010.

'Road of duty'

Mr Papandreou, who came to power in 2009, has not indicated the extent of his ministerial shuffle, but correspondents say it may include the replacement of Finance Minister George Papaconstantinou.

Economic analysts predict the post is likely to be filled by Lucas Papademos, a former vice-president of the European Central Bank.

George Papandreou: "This is a time of duty"

This would be met with approval from the IMF and EU, but whether it will satisfy members of parliament remains unclear, our correspondent says.

The government is seeking approval for a package of 28bn euros (£24.6bn; $40.5bn) of cuts, due to take effect from 2012 to 2015.

The policies are required for the release of the next tranche of aid - 12bn euros - from the EU and IMF.

During talks, Mr Papandreou was said to have offered to step down to clinch a coalition, but later agreed to carry on.

Greek bail-out timeline

  • May 2010: EU and IMF agree bail-out package to prevent Greece defaulting on its debts; in return, Greece agrees to make 30bn euros of budget cuts over the next three years
  • February 2011: EU and IMF experts tell Greece it must make further cuts to keep its recovery on track
  • April 2011: EU figures reveal Greek deficit revised up to 10.5%, worse than previously thought
  • May 2011: Greece begins privatisation programme but is warned the IMF may not release more funds because Athens cannot guarantee it will remain solvent for the next 12 months
  • 29 June 2011: Deadline for Greece to agree new austerity package

Greece's debt was downgraded by Standard & Poor's ratings agency earlier this week, making the debt the lowest-rated of the countrries it monitors.

On Wednesday, tens of thousands of activists and unionists gathered in Syntagma square in Athens, near parliament.

A further 20,000 people also demonstrated in Thessaloniki, police said.

The general strike was the third in Greece this year.

The events destabilised markets, with major indexes witnessing the biggest drop on Wednesday since 1 June, and the euro sliding more than 1% against the dollar.

Yields on Greece's 10-year bonds reached a record high of 18.4%.

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