Wednesday, June 15, 2011

Greek Protests Force Government Shake-up

Greek Protests Force Government Shake-Up

Wall Street Journal

ATHENS—Greek Prime Minister George Papandreou, facing mounting opposition to his plans for further austerity measures being demanded as a price for a new bailout needed to avoid a debt default, said Wednesday he would shuffle his cabinet and demand a vote of confidence in Parliament.

The vote is likely to herald a further bout of intense uncertainty in financial markets already rattled by the disagreements over a new rescue package. Mr. Papandreou's Socialist party has a majority of just four in parliament, following defections by two Socialist deputies in recent days. The shuffle is likely to claim the head of Finance Minister George Papaconstantinou, the architect of the unpopular measures.

After a day of sometimes-violent street protests in the capital and a strike by two major unions that crippled public services, Mr. Papandreou said in a televised address that his efforts to create a government of national unity with opposition parties had been rebuffed.

"Before we even went into substantial talks, the opposition brought up conditions that can't be accepted," Mr. Papandreou said in his address. "I will continue on the same path. Tomorrow I will form a new government and seek a vote of confidence from parliament."

According to two Greek officials, Mr. Papandreou had spoken to the four opposition party leaders during the day. He told them he would step down if needed to create a government of national unity—but only if they supported the package of budget cuts and privatizations demanded by other euro-zone governments and the International Monetary Fund.

Reflecting worries about a disorderly debt default, yields on Greek government bonds leaped to new highs, with two-year paper yielding 29%. Bond yields on other troubled euro-zone economies like Portugal and Ireland also moved higher, and stock markets fell across Europe. The euro dropped 1.5% against the dollar in intraday trading.

Anxieties also grew about the fallout for banks. Moody's Investors Service warned it may downgrade French banks because of their high exposure to Greece, and said it might do the same to other euro-zone banks. The French banks, two with Greek subsidiaries, all said any losses would be manageable.

"The risk of a vicious spiral of sovereign and bank-credit downgrades points to growing financial distress as the risk of a disorderly Greek default looms large," said Lena Komileva of Brown Brothers Harriman in London.

Default worries also are mounting from another direction. Euro-zone governments, slated to provide most of the funds for a second bailout after a €110 billion ($159 billion) rescue package agreed last year failed to resolve the country's finance crisis, continued their open disagreements about how to structure the new deal.

Finance ministers meeting Tuesday night failed to find a solution as to how much of a bailout contribution to demand from current private holders of Greek bonds.

Germany wants a significant private-sector contribution, but France, supported by the European Central Bank, is strongly against that.

As Mr. Papandreou maneuvered behind closed doors, protests involving tens of thousands of demonstrators turned occasionally violent outside as police fought street battles with dozens of self-styled anarchist youths and sought to disperse crowds with tear gas and pepper spray.

The demonstrations were said by many people to be larger in scale and intensity than almost any since the start of the crisis.

Demonstrators came from all walks of society, including big swaths of the middle class.

Elderly women and suburban couples lined up next to—and sometimes argued with—anarchists and other protesters intent on stirring trouble.

Many said they no longer trusted the government, and expressed frustration that severe austerity measures so far—which the government described Wednesday as the "largest fiscal consolidation in the euro zone"—had done nothing to improve the economy.

As scraps between police and protesters raged at close range on narrow side streets west of Syntagma Square, which is flanked by Parliament and is the focus of the protests, riot police sometimes found themselves confronted not just by anarchists, but by other citizens, joining the rally cry: "IMF go home."

"I am doing this for my country," one police officer protested.

"We pay your salary—we are your country," countered a woman in her 60s, according to Sofia Kouvelaki, an economist who witnessed the exchange.

John Petru, 41 years old, had come to aid the cause: to block parliamentarians from arriving to debate the budget cuts. "We do not trust them," he said of the politicians. The recession has eaten badly into his cleaning-service business. "Business is down, and prices are up, and we are not sure about anything," he said.

The new measures propose significant tax increases. "It will kill us," Mr. Petru said.

Many protesters said they had gone along with previous budget cuts and wage reductions on the belief that those sacrifices would be enough to right Greece's financial fortunes.

"They have asked us to reduce our wages, to live another standard of life," said Angeliki Kachrimani, a 42-year-old worker for Greece's postal service. She accepted a 15% wage cut, while her husband, a history teacher, is unemployed.

"They told us this would be for the greater good. We see now that either [the government] is incompetent or it is deliberately pulling us into this situation where you crush the working classes," she said.

Several injuries were reported, including at least four demonstrators, two police officers and a local journalist. Two demonstrators were arrested and 18 were detained, according to police.

Parliament is set to begin debating a five-year, €28 billion austerity program on June 28, and to vote on it on June 30. Combined with an ambitious €50 billion privatization plan, the new measures foresee a raft of new taxes and spending cuts.

—Stephen L. Bernard in New York and Charles Forelle in Athens contributed to this article.
Write to Alkman Granitsas at

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