Greek PM Poised for Cabinet Shake-up

ATHENS, Greece (Sept. 6) -- Greece's embattled Prime Minister George Papandreou looks set to overhaul his Cabinet as criticism swells over lagging attempts to enact reforms, spur growth and yank Greece out of its deepening recession.

It remained unclear, however, whether the shake-up -- anticipated for months, and now due to be announced by Tuesday -- would include sweeping Cabinet changes or a mere replacement of three deputy ministers drafted by the prime minister over the weekend to run in upcoming local elections.

"He has more than hinted at the need for change; setting up a better team around him to improve day-to-day government management," said a senior government aide. "Ultimately though, the reshuffle won't derail or distract from his attempts to follow through with Greece's austerity program."

That's diplomatic longhand for no changing George Papaconstantinou, the no-nonsense Greek finance minister spearheading the country's financial recovery strategy. Economy Minister Louka Katseli, though, is on riskier ground.

Papandreou soared to power last year, trouncing conservatives on a promise to re-invent the Greek state, crush cronyism and stamp out corruption. He also inherited Greece's worst financial crisis and first recession in 16 years, staving off Europe's first sovereign default with brutal fiscal cutbacks required for a $140 billion bailout package patched together by the European Union and the International Monetary Fund.

Now, a year later and with austerity measures in full swing, Greeks are pessimistic about Papandreou's chances of scoring financial recovery. While the affable, American-bred leader remains Greece's most prominent politician, a flurry of weekend polls show nearly six in 10 Greeks believe his government's performance is deteriorating. An estimated 76 percent said they were pessimistic about the nation's economy improving altogether.

While Papandreou and his team have won the praise of EU and IMF inspectors for quickly pursuing austerity reforms earlier this year, financial markets still fear a relapse that could put fresh strains on the euro and government debt markets. Part of the problem, experts say, is the huge gap in fortunes between the various member states of the euro zone; that while the bloc's three largest economies -- Germany, France and Italy -- are growing, smaller peripheral economies, like those of Greece and Portugal, are contracting.

Even so, European Central Bank Chief Jean Claude Trichet said over the weekend that the option of Greece leaving the euro and reverting to the drachma would be "the worst possible."

For Papandreou, the nation's Nov. 7 local elections are bellwether polls, critical for his government's political fate and fortune. For months, the socialist PASOK party has been mired by bitter infighting, with market-minded reformers facing off old guard socialists questioning Papandreou's pick of severe fiscal cutbacks.

"The policies being implemented are against our beliefs, ideological platform and political promises," barked party cadre Giorgos Panagiotakopoulos at a recent party conference. "This is not PASOK."

Greece's gross domestic product contracted by 3.5 percent in the second quarter from a year earlier, stinging retailers and shooting unemployment rates to above 12 percent. By some accounts, as many as 375,000 businesses are generating losses across the country, with 176,000 of them facing the risk of closure by the end of 2011.

For a labor-friendly and social compassionate government, such outlooks are difficult to defend.

What's more, unemployment rates are hitting Greece's youth the hardest: one in three 15-to-24-year-olds who have left school and are in the labor force looking for work, cannot find jobs, according to Greece's Ellstat statistics agency.

The nation's near-daily show of protests and wildcat strikes has petered out. Still, public anxiety remains palpable and consumers, returning from their summer holidays, are holding back amid fears that additional cutbacks may be announced by the prime minister in his state of the union address this week.

EU and IMF inspectors arrive in Athens next week to review whether Greece is up to speed with requested reforms and whether the next bailout installment should be released in October.