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Greek PM makes rival finance chief to shore up support
ATHENS/BERLIN, June 17 (Reuters) - Greek Prime Minister George Papandreou sacrificed his unpopular finance minister on Friday and put his main socialist party rival into the job in a bid to force through an austerity plan to avert bankruptcy.
The appointment, which analysts said was a second-best after Papandreou failed to persuade respected former European Central Bank vice-president Lucas Papademos to come aboard, came just before a crucial Franco-German summit to discuss future aid to Athens.
The elevation of Defence Minister Evangelos Venizelos to the finance ministry was aimed at securing party backing for crucial tax rises, spending cuts and sell-offs of public assets required for the EU and IMF to disburse emergency loans to keep Greece afloat next month and avoid a default which could unleash global financial turmoil.
Outgoing Finance Minister George Papaconstantinou, who negotiated a first 110 billion euro bailout for Athens last year and had the confidence of international lenders and financial markets, was shunted aside to the environment ministry in a crisis-driven reshuffle.
"Venizelos is politically powerful and that might bode well for the implementation of fiscal consolidation, even though he has no track record in financial matters," UBS analyst Alexander Kyrtsis said.
Initial Greek market reaction was positive with bank shares .FTATBNK rising by as much as 4 percent and the Athens stock market index up 2 percent.
But bond markets remain spooked by fears of a Greek default and most economists are overwhelmingly sceptical that Greece can ever repay its debt mountain, which has reached 340 billion euros or 150 percent of the country's annual economic output.
Reuters' calculations based on 5-year credit default swap prices from Markit show an 81 percent probability of Greece eventually defaulting on its debt based on a 40 percent recovery rate.
In Berlin, German Chancellor Angela Merkel and French President Nicolas Sarkozy will try to overcome sharp differences on how to involve private investors in the second rescue plan without sparking carnage in financial markets.
A German minister said he expected them to strike a compromise after weeks of wrangling that has rattled markets.
"I believe the meeting today will yield a solution," German Deputy Foreign Minister Werner Hoyer told ZDF television. "I am sure they will come to a compromise.
The European Central Bank and European Commission have warned that any form of private sector involvement that causes a "credit event" or a downgrading of Greek debt to default status could wreak devastating damage on the euro zone.
ATHENS/BERLIN, June 17 (Reuters) - Greek Prime Minister George Papandreou sacrificed his unpopular finance minister on Friday and put his main socialist party rival into the job in a bid to force through an austerity plan to avert bankruptcy.
The appointment, which analysts said was a second-best after Papandreou failed to persuade respected former European Central Bank vice-president Lucas Papademos to come aboard, came just before a crucial Franco-German summit to discuss future aid to Athens.
The elevation of Defence Minister Evangelos Venizelos to the finance ministry was aimed at securing party backing for crucial tax rises, spending cuts and sell-offs of public assets required for the EU and IMF to disburse emergency loans to keep Greece afloat next month and avoid a default which could unleash global financial turmoil.
Outgoing Finance Minister George Papaconstantinou, who negotiated a first 110 billion euro bailout for Athens last year and had the confidence of international lenders and financial markets, was shunted aside to the environment ministry in a crisis-driven reshuffle.
"Venizelos is politically powerful and that might bode well for the implementation of fiscal consolidation, even though he has no track record in financial matters," UBS analyst Alexander Kyrtsis said.
Initial Greek market reaction was positive with bank shares .FTATBNK rising by as much as 4 percent and the Athens stock market index up 2 percent.
But bond markets remain spooked by fears of a Greek default and most economists are overwhelmingly sceptical that Greece can ever repay its debt mountain, which has reached 340 billion euros or 150 percent of the country's annual economic output.
Reuters' calculations based on 5-year credit default swap prices from Markit show an 81 percent probability of Greece eventually defaulting on its debt based on a 40 percent recovery rate.
In Berlin, German Chancellor Angela Merkel and French President Nicolas Sarkozy will try to overcome sharp differences on how to involve private investors in the second rescue plan without sparking carnage in financial markets.
A German minister said he expected them to strike a compromise after weeks of wrangling that has rattled markets.
"I believe the meeting today will yield a solution," German Deputy Foreign Minister Werner Hoyer told ZDF television. "I am sure they will come to a compromise.
The European Central Bank and European Commission have warned that any form of private sector involvement that causes a "credit event" or a downgrading of Greek debt to default status could wreak devastating damage on the euro zone.
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