Greek prime minister to reshuffle Cabinet after coalition talks fail

Greece’s prime minister, struggling to ensure Parliamentary approval for a crucial austerity bill, said Wednesday he would reshuffle his Cabinet and seek a vote of confidence for his new government after coalition talks with opposition parties failed.

ATHENS — Greece’s prime minister, struggling to ensure Parliamentary approval for a crucial austerity bill, said Wednesday he would reshuffle his Cabinet and seek a vote of confidence for his new government after coalition talks with opposition parties failed.

The negotiations collapsed as rioters clashed with police in the streets of Athens during a general strike and renewed fears of default rattled global markets.

Prime Minister George Papandreou has been struggling to contain an internal party revolt over a new austerity package that is the main condition for continued funding from a C110 billion ($155 billion) international bailout.

Without continued funding from the rescue loans, Greece will default on its massive debts — which would unsettle the global economy and undermine the future of the eurozone.

Socialist officials said Papandreou had offered to even step down to clinch a coalition with the opposition conservatives before the talks collapsed, in a dramatic day that saw Greece’s borrowing rates hit new highs and lawmakers escorted by armed motorcycle guards past protesters into parliament.

Police fired repeated volleys of tear gas to repel rioters hurling firebombs and ripped-up paving stones as an anti-austerity rally by tens of thousands of protesters degenerated into violence.

A crowd of youths smashed the windows of a luxury hotel in the square. More than 60 people were injured, including 36 police, as clouds of choking gas wafted through central Athens. Bewildered tourists struggled through the mayhem, dragging their luggage behind them.

Global stocks were closing sharply lower as the events in Greece — which has the worst sovereign credit rating in the world — further destabilized markets. Major indexes had their biggest drop on Wednesday since June 1 and the euro slid more than 1 per cent against the dollar.

Papandreou said he would reshuffle his Cabinet Thursday and called a confidence vote on the new government, expected Sunday.

However, several of his own deputies publicly oppose the new austerity package, which must pass a Parliamentary vote this month.

Wednesday’s mayhem is likely to be viewed with concern in the other European countries that are bailing out Greece. European officials have pushed for cross-party support for the new measures as they extend to 2015, two years beyond the current government’s term in office.

The political manoeuvring and violence on the streets of the Greek capital triggered a sell-off in global financial markets as investors worried that a default in Greece could hurt banks in other countries in a chain reaction experts predicted would be catastrophic.

Yields on the country’s 10-year bonds reached new record highs, spiraling to 18.4 per cent.

Market turmoil has reflected waning confidence that Papandreou could win the vote in the 300-seat Parliament, where his majority was trimmed to five Tuesday after one of his deputies rebelled and declared himself an independent. Another deputy has said he will not support the bill, due to be voted on by the end of this month.

“The country is facing critical times,” Papandreou said in a televised address to the nation. “Tomorrow I will form a new government and immediately afterwards I will ask for a vote of confidence from Parliament.”

The conservative opposition leader, Antonis Samaras, had demanded Papandreou resign as a condition for his party joining any coalition.

Papandreou said that while he “clarified that my responsibility has no dependence on official posts,” the way the negotiations were handled was unacceptable.

“Before the meaningful issues were negotiated, conditions were made public that could not be accepted,” he said. The conservatives’ demands would have kept “the country in a lingering state of instability and introversion, while the vital national issue remains dealing with the national debt.”

Furious opposition parties called for elections, and Samaras said a vital opportunity had been lost.

“The prime minister rejected the only proposal for consensus that could have lifted the country out of its impasse, and united the Greek people,” Samaras said.

“A great and historic opportunity was lost and of course Europe will understand this.”

The question remained whether Papandreou could govern, the opposition leader said.

“If he can, then he shouldn’t have asked for our support,” Samaras said. “If he can’t, then he should hold elections.”

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