June 17 (Bloomberg) -- Evangelos Venizelos left the Greek defense ministry to begin what he called the “real battle” as finance minister in Prime Minister George Papandreou’s fight to stave off default.
“For those political powers that accept the European course for the country, points of agreement are many and the points of discord remarkably small,” said Venizelos, who was sworn in as minister today. “Our first priority is the sustainability of the public debt. It is a subject on which there hasn’t been any disagreement.”
Papandreou today fired Finance Minister George Papaconstantinou, the target of ire among the ruling Socialists for deepening budget-deficit cuts, in an overhaul aimed at fending off a party rebellion and ensuring the passage of austerity measures needed for a bailout.
Venizelos, who challenged Papandreou for leadership of the party in 2007, may ensure the unity needed to approve the new package and a confidence vote in the government due next week.
The appointment of the 54-year-old Venizelos, also named deputy premier, “is likely to succeed in establishing a fragile truce with the ruling Pasok and mustering the required parliamentary support for the confidence vote and approval of the critical medium-term fiscal plan,” said Wolfango Piccoli, a London-based analyst at the Eurasia Group, which monitors political risk.
Investor concern that Papandreou’s grip was slipping and the chance of default growing sent the euro and Greek stocks and bonds sliding the past two days, prompting European leaders and the International Monetary Fund to issue statements that financial aid was on track. Bonds and stocks gained today after Chancellor Angela Merkel retreated from German demands that bondholders should shoulder their share of a Greek rescue.
Failure to secure aid would push Greece to the brink of default, with the country needing the funds to cover 6.6 billion euros ($9.4 billion) of maturing bonds in August. The country raised 2 billion euros this week selling 26-week Treasury bills and will auction 1.25 billion euros of 13-week bills on June 21.
The yield on Greece’s 10-year bond dropped 94 basis points to 17.1 percent after Merkel’s comments. The Athens stock exchange advanced 4.2 percent at 5 p.m. local time, buoyed by a 9.4 percent gain by National Bank of Greece SA, the country’s biggest lender.
The cost of insuring Greek debt fell. Credit-default swaps on Greece were at 1,895 basis points as of 2:30 p.m. in London having risen as high as 2,237 basis points yesterday, according to CMA.
‘Plug the Holes’
“Perhaps there are disagreements on the policy mix for achieving the needed deficit cuts, or how to get to primary surpluses as fast as possible,” said Venizelos, who spoke during the handover at the Athens-based Finance Ministry. “But on the need to make debt sustainable so we can plug the holes and make the sacrifices and efforts of the Greek economy effective, there is no disagreement.”
Venizelos said it was his “patriotic duty” to take on the portfolio, saying he told colleagues at the defense ministry “I am leaving defense today to go to the real battle” to reduce Europe’s biggest debt load -- almost 1 1/2 times the size of its economy.
Papandreou also replaced his foreign, interior, labor and justice ministers, reducing the overall number of ministers to 16 from 17. Papaconstantinou will move to the Environment and Energy Ministry.
Papandreou also moved his interior minister, Yiannis Ragousis, to the Infrastructure and Transport Ministry, responsible for many of the structural reforms, such as opening up the trucking profession, demanded by some of Greece’s creditors. European Union and IMF officials have criticized the pace of progress in that area.
Two members of Papandreou’s parliamentary group resigned yesterday, prompting lawmakers from his party to demand an emergency meeting, which delayed the announcement of a new Cabinet. Papandreou told his allies the country needs unity more than ever and has called for a confidence vote in his new government.
The debate on the motion will begin on June 19 and end late on June 21, according to a statement posted on the Parliament’s website today.
Papaconstantinou, who shepherded Greece’s rescue last year, drew fire for the five-year package of cuts and state-asset sales. Papandreou’s options narrowed after attempts to gain opposition support for the austerity plan failed, party allies turned against him and public anger grew.
The reshuffle shows “the political problems to push through such a restructuring program domestically are enormous,” ECB Governing Council member Ewald Nowotny told reporters in Vienna. “The questions of political strength, of political assertiveness, are crucial for the success of a restructuring program. That means we are, of course, watching with a certain anxiety if this strength also is there.”
Venizelos is a professor of constitutional law who earned his doctorate from the Sorbonne in Paris. In 2007, after Papandreou was defeated a second time by the main opposition New Democracy party, he challenged Papandreou for leadership of the socialist party and lost.
Papandreou appointed him defense minister when he came to power in October 2009. Venizelos served as transport, culture and press minister in previous socialist governments.
--With assistance from Marcus Bensasson and Eleni Chrepa in Athens, Jonathan Stearns in Brussels and Zoe Schneeweiss in Vienna. Editors: James Hertling, Craig Stirling
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