Bloomberg News

Papandreou to Name New Greek Government, Seek Confidence Vote

June 15, 2011

June 15 (Bloomberg) -- Greek Prime Minister George Papandreou will name a new government tomorrow and call a vote of confidence in parliament as he seeks to pressure rebel lawmakers to back the austerity plan that aims to secure a new bailout.

“Our duty is to the nation, not to political parties,” Papandreou said in comments televised live on state-run NET TV. “Tomorrow I will form a new government and immediately afterwards seek a vote of confidence in Parliament. It is a time for responsibility.”

Papandreou’s options narrowed his bid to garner support from the biggest opposition bloc failed, party allies turned against him and police deployed tear gas to break up anti- government protests in central Athens today. The premier needs to clinch a parliamentary vote on a 78 billion-euro ($110 billion) five-year package of budget cuts and asset sales by the end of the month to ensure the country receives a new European Union aid package to avoid the euro-area’s first default.

“The prime minister’s attempts to regain the political initiative are far from assured of success,” said Martin Blum, co-head of asset management at Ithuba Capital in Vienna. “He has seemingly weakened further himself politically, whilst he risks further defections post reshuffle. The question of whether he can get the fiscal package through parliament remains open.”

Bailout Impasse

The political turmoil comes as the EU talks on forging a new bailout stalled. The impasse over the aid formula and speculation of an impending government shakeup sent Greek bond yields to euro-era records and weakened the euro today.

The yield on two-year Greek notes exceeded 28 percent for the first time and rates on 10-year Greek bonds gained 35 basis points to 17.73 percent. The cost of protecting Greece against default climbed 149 basis points to an all-time high of 1,754 in London, according to prices compiled by CMA.

More than 20,000 people rallied against wage reductions and tax increases as lawmakers debated the budget cuts and asset sales that are conditions of the aid. Ports, banks, hospitals and state-run companies were paralyzed by strikes. Thousands of people remained in central Syntagma Square outside the Parliament house late into the evening. Police estimated the crowd at as many as 8,000 people at 10:20 p.m.

The third general strike this year underscored the pressure on Papandreou. His Socialist Pasok party held a six-seat edge in the 300-member legislature before the defections by two erstwhile allies this week.

Finance Minister George Papaconstantinou, who shepherded the first 110 billion-euro bailout of the country last year, is under attack by party lawmakers for the new round of austerity cuts and may be first to be replaced, Greek media has reported. A possible replacement may be Lucas Papademos, the former European Central Bank vice-president who is now an adviser to Papandreou.

--With assistance from Marcus Bensasson and Eleni Chrepa in Athens. Editors: Andrew Davis, James Hertling

To contact the reporters on this story: Maria Petrakis at mpetrakis@bloomberg.net

To contact the editors responsible for this story: James Hertling at jhertling@bloomberg.net


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