2nd UPDATE: Greek PM Reshuffles Cabinet, New Fin Min Named
Wednesday January 7th, 2009 / 14h50
(Adds details, background, economist's quote.)
ATHENS -(Dow Jones)- Embattled Greek Prime Minister Costas Karamanlis announced Wednesday a broad cabinet reshuffle, including a new finance minister, in a bid to boost his government's flagging popularity.
The announcement comes shortly after Greece was rocked by violent protests and riots, which were started by the police shooting of a 15-year-old boy in early December.
Nine of 16 cabinet-level ministers were replaced, including the increasingly unpopular finance minister who was seen as the author of four years of government austerity programs and a recently announced package of new taxes.
In a televised press conference, government spokesman Evangelos Antonaros announced that Finance Minister George Alogoskoufis would be replaced by his deputy, John Papathanassiou, an electrical engineer by training and past president of the Athens Chamber of Commerce and Industry.
The center-right New Democracy government, first elected on a platform of economic reform in 2004, was narrowly returned to power in September 2007, commanding a one-seat majority in the 300-member Greek parliament.
In the past year, its popularity has been eroded after a series of unpopular economic reforms and corruption scandals, including a controversial land-swap deal with a powerful local Greek Orthodox monastery.
That deal, said to have cost the government hundreds of millions of euros, has already led to the resignation of two ministers, and Wednesday's cabinet reshuffle saw another two New Democracy members pushed out of ministerial positions.
The main opposition Panhellenic Socialist Movement, or Pasok, has a steady five to six percentage point lead over New Democracy in public opinion polls.
The long-awaited cabinet reshuffle had little effect on Greece's financial markets, with most analysts expecting the government to continue with its economic program despite the replacement of its two key economic ministers.
At 1330 GMT, the Athens Stock Exchange general index was up 3.6% at 1,928.79 points on low to moderate volume.
Greek government bonds were also slightly stronger, with the spread between the benchmark 10-year bond narrowing to about 215 basis points over comparable German bunds, down 220 basis points in early trade.
"Essentially, I don't think we'll see any major change in the government's economic policy as a result of this reshuffle. It's mainly aesthetic," said an economist at a Greek bank. "Mainly that's because the government's room for maneuver in terms of fiscal policy is very, very limited."
Since first taking office, the New Democracy government has cut Greece's budget deficit roughly in half - from a ratio of 7.5% of gross domestic product in 2004 to 3.5% last year. However, with the onset of the global economic crisis, and a debt burden equal to more than 90% of GDP, the second-highest in the eurozone after Italy, the government is struggling to keep the deficit in check.
Karamanlis also replaced Development Minister Christos Folias with current Transport Minister Costis Hadzidakis, who has presided over the privatization of Greece's deficit-ridden flag carrier, Olympic Airlines.
The Transport Ministry portfolio will be assumed by Euripides Stylianides, currently the education minister.
However, both Foreign Minister Dora Bakoyannis and Defense Minister Evangelos Meimarakis were reconfirmed in their posts, as was Interior and Public Order Minister Prokopis Pavlopoulos, who had offered to resign last month following the police shooting of 15 year-old Alexis Grigoropoulos.
The new ministers will be sworn in Thursday.
-By Alkman Granitsas, Dow Jones Newswires; +30 210 331 2881; alkman.granitsas@dowjones.com
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