Greek PM George Papandreou to reshuffle cabinet

Mr Papandreou says he is determined to help deliver Greece from its financial crisis

Greece's Prime Minister George Papandreou is preparing to reshuffle his cabinet in a bid to ensure tough austerity measures are passed.

Deeply unpopular, the cuts have sparked riots on the streets of Athens and triggered a political crisis.

Finance Minister George Papaconstatinou, who drew up the measures, is expected to lose his job.

The French and German leaders are due to meet shortly to discuss how to prevent Greece defaulting.

Angela Merkel and Nicolas Sarkozy are to meet in Berlin to discuss how to ensure the country can avoid default on its sovereign debt.

French and German banks have the most exposure to Greek debt, holding, between them, 55% of Europe's total exposure.

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 European Union and International Monetary Fund.

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 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 as Athens cannot guarantee it will remain solvent for next 12 months
  • 29 June 2011: Deadline for Greece to agree new austerity package

The EU's top financial official Olli Rehn has indicated Greece is likely to get its next financial lifeline in July, even though EU finance ministers have yet to agree on a new bailout package.

Economic analysts predict the post of finance minister is likely to be filled by Lucas Papademos, a former vice-president of the European Central Bank and a choice that would be met with approval from the IMF and EU.

Three deputies have left Mr Papandreou's Socialist Party in as many days in protest at the five-year austerity package but, on Thursday, Mr Papandreou vowed to fight on.

"We will prevail and we will hold on. We have as a country in the past successfully faced major crises. As hard at this struggle is, we cannot run away from our fight," he said.

"We will fight and we will win, for Greece, its people and the future of the new generations."

Downgraded debt

A planned confidence vote on the new government could take place, at the earliest, on Sunday, which would also give the EU more time to finalise a package to help Greece.

On Wednesday, the country witnessed some of the most violent protests in more than a year, as tens of thousands of activists and unionists gathered in Syntagma square in Athens, near parliament, while a further 20,000 demonstrated in Thessaloniki.

Start Quote

EU leaders are at loggerheads over the issue: should Greece be allowed to do a 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

The resignations of two deputies from Mr Papandreou's socialist Pasok party 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.

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

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 for 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.

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

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