Greek Government in Turmoil Over Austerity Measures

Athens – Struggling to contain his fractured government under the glare of world markets, Greek Prime Minister George Papandreou said on Thursday that he remained committed to leading Greece out of the financial crisis and was confident he could pass needed reforms.

“You can rely on me and I will support the national effort to extract Greece from the crisis,” Mr. Papandreou told Parliament.

A day after he failed to secure a unity government to push through austerity measures required to secure more international aid, Mr. Papandreou said he would seek a broader consensus and that he would announce a cabinet reshuffle, though he did not say when.

“Now is not the time to give up,” he said. “Now is the time to continue, now is the time to say yes to important change.”

Earlier in the day, Mr. Papandreou’s increasingly divided Socialist Party was hit by the defections of two more lawmakers. Those were not expected to affect the Socialists’ narrow majority, as the seats will remain with the party, but they underscored the severity of the situation Mr. Papandreou finds himself in.

Mr. Papandreou’s announcement appeared to put to rest speculation he would call snap elections. It came hours after the defection of two Socialist members of Parliament.

The political uncertainty comes at a tense moment for Greece, which must put a new round of austerity measures into effect by the end of the month if it is to receive fresh loans from the International Monetary Fund and the European Union to help it through its financial crisis. Speculation is swirling about whether the reshuffle would replace the current finance minister, George Papaconstantinou.

The crisis, which started after Greek and European officials began to reveal the full extent of the country’s indebtedness in 2009, has raised fears about the future of the euro zone and weighed on markets around the world. Olli Rehn, the European economic and monetary affairs commissioner, on Thursday called on the Greek Parliament to back the austerity measures.

Mr. Papandreou offered Wednesday to step aside so that his Socialist Party could form a coalition government with the center-right, but only if the opposition would support a new bailout plan for Greece, a move it continues to oppose. Mr. Papandreou’s support has been plummeting, even within his party, and the Socialists appear to be lagging behind the center-right opposition for the first time since the current government was elected in 2009. With a five-seat majority in Parliament, Mr. Papandreou has been struggling to get his government fully behind the measures and to contain growing rifts within his party.

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Antonis Samaras, the leader of the center-right New Democracy party, has opposed spending cuts. He has called instead for tax breaks and a renegotiation of the terms of Greece’s agreement with its foreign creditors.

After hours of speculation, Mr. Papandreou went on national television Wednesday night and announced the cabinet reshuffle. He also criticized the opposition for playing politics with the country’s future.

Mr. Samaras defended his actions in a televised speech after Mr. Papandreou’s appearance, saying it was impossible to participate with the Socialists because “they have lost the trust of both the Greek citizens and the markets.”

Referring to Mr. Papandreou, he said, “If he can govern, he shouldn’t have asked us for support. If he can’t, he should call elections.”

On Wednesday, thousands of people joined a nationwide strike as Parliament prepared to debate what would be a second round of sharp reductions in government spending. The measures are highly unpopular with Greeks, who have already suffered deep salary and pension cuts.

“We had the first set of measures; that’s over, now they want a second,” said Angeliki Kolandretsou, 63, a retired private nurse who joined the nationwide strike Wednesday. “But what will we see from this? Nothing at all. It will just go to the banks.”

On Wednesday, the police fired tear gas and scuffled with protesters in the central Syntagma Square here. The demonstrators were largely peaceful and from across Greek society, but some in the crowd smashed the windows of a luxury hotel and tried to prevent legislators from entering Parliament. Police officials said they detained more than 20 people.

Violent and often theatrical protests have long been a mainstay in Greece, even before the financial crisis hit. But in a more telling sign of the depth of the anger, peaceful demonstrators have gathered daily in Syntagma Square for three weeks, some sleeping in tents, to protest the austerity measures.

In Greece, there is a deep divide between policy experts, who tend to believe that the country is taking the right steps to get back on track, and a large percentage of Greeks, who feel they are unfairly suffering from the government’s mistakes.

“We didn’t create the debt; they created the debt,” said Lina Pantazi, 40, a public school French teacher, as she stood in Syntagma Square wearing a surgical mask and sunglasses to protect against tear gas that the police fired on the crowds.

The new austerity measures aim to raise about $9.1 billion this year through additional tax increases and cuts to public sector spending.

They include a “solidarity tax,” ranging from 1 to 4 percent according to income, and an additional 3 percent tax on the incomes of civil servants — whose salaries have already been cut by up to 20 percent over the last year.

Owners of large properties, yachts and swimming pools would be subject to an emergency tax. The new austerity drive would also slash the Greek civil service, which employs about 800,000 people, by a quarter over the next few years, and sell off $71.45 billion in state-owned assets, including stakes in Greece’s main electricity utility.

Critics accuse the government of cutting wages and pensions while failing to adequately address rampant tax evasion or take on the powerful labor unions that remain a pillar of the Socialists’ power base.

But analysts said that in spite of the political turmoil, the Greek Parliament was still likely to pass the new austerity measures. “It’s going to be difficult, but the dilemma is clear,” said George Pagoulatos, a professor of European political economy at Athens University of Economics. “If the measure doesn’t pass and we don’t get the money, we go bankrupt.”