GREEK PRIME minister George Papandreou is poised to reshuffle his divided cabinet today and face a confidence motion as he tries to reassert control over his struggling Socialist administration.
News of the reshuffle capped a series of dramatic events in which violence returned to the streets of Athens and Mr Papandreou offered to quit if opposition leaders sought his departure in return for joining a government of national unity.
In a televised address last night, however, he vowed not to change course. “Tomorrow I will form a new government and then I will ask for a vote of confidence. I will continue on the same course. This is the road of duty, together with Pasok’s parliamentary group, its members and the Greek people.”
The move raises the stakes in a growing political and financial crisis in which Mr Papandreou has tried to face down resistance within his own government to a swingeing new round of cutbacks and tax increases.
This new austerity plan, a key condition of continued EU-IMF bailout aid, threatens his parliamentary majority of six, as two MPs say they will not vote for the initiative and others are said to be wavering.
Mr Papandreou tried yesterday to combat resistance to the recovery effort within Pasok by offering a place in government to the country’s centre-right opposition.
The offer surprised some of Mr Papandreou’s own ministers.
It came amid deepening divisions in Europe over the country’s ailing bailout as Germany and the European Central Bank argue over private creditor participation in the rescue effort.
Before declaring plans for the reshuffle, Mr Papandreou had been insisting yesterday that opposition New Democracy leader Antonis Samaras must adhere to his economic plan and back constitutional reform in the country.
He also held out the possibility that he would support an effort to amend the terms of the EU-IMF bailout.
Although the reshuffle cast doubt over the offer, Mr Papandreou’s approach to Mr Samaras opened up the prospect of a deal with New Democracy without elections being called. Mr Samaras has insisted he will only participate in a national government if Mr Papandreou leaves and the EU-IMF pact is reopened.
There was some scepticism in Brussels about the offer to New Democracy, as officials are wary of any bailout “renegotiation”. However, the EU authorities have been putting Mr Papandreou under huge pressure to forge a national consensus on a contentious recovery programme for the country.
“He’s not resigning, but he is saying to Samaras: ‘You have to adopt my plan if you are to joint a national government’,” a Greek government source told The Irish Times.
“What is at stake is the country. Papandreou is saying ‘if the problem is me I will go’, but what he wants is an agreement on the policies of his government, including commitments on privatisations and big political changes including constitutional reform.
“In other words, a new unity government would have to continue with the reforms.”
The development comes as the EU authorities struggle to settle on new measures to resolve the Greek crisis.
European leaders had hoped to conclude their talks before they gather for a summit at the end of next week, but diplomatic sources now concede the talks are likely to drag into next month.
At issue is the release of a €12 billion tranche of bailout funding next month and an elusive agreement on a second rescue pact to fill the funding gap that will arise from the country’s likely exclusion from private bond markets next year.
Slovak finance minister Ivan Miklos indicated yesterday that the timeframe for an agreement on new aid for Greece has now slipped into next month. “The new programme should be approved at the latest July 11th,” he said.
Germany wants a “quantified” contribution from private investors in any second bailout for Greece but the ECB is very wary of anything which would compel creditors to take part.
Ireland, conscious that any Greek default could derail the Government’s efforts to regain access to private debt markets next year, has opposed the German stance.
The ECB has signalled it may support a scheme mirrored on the 2009 “Vienna Initiative” in which international banks voluntarily agreed to maintain their exposure to central and east European countries in the wake of the Lehman default.
However credit rating agency Fitch expressed scepticism, saying such a plan would be judged “to constitute a distressed debt exchange and hence a default event, even if bondholders’ participation was deemed to be voluntary”.
A French government spokesman said Paris was opposed to debt “restructuring” or a “credit event” and was committed to working with the ECB, setting the scene for difficult talks in Berlin tomorrow between French president Nicolas Sarkozy and German chancellor Angela Merkel.
