In the course of shuffling his Cabinet on Friday, Greece's Prime Minister George Papandreou sacrificed his finance minister, George Papaconstantinou. In Papaconstantinou's place the prime minister appointed his own chief rival in the Socialist Party, Defense Minister Evangelos Venizelos, in the hopes of pushing through a tough austerity package and warding off default.
Reuters reported that Venizelos took over from Papaconstantinou, while the latter was shunted to the environment ministry. Whether or not the move pays off remains to be seen; Papaconstantinou had the confidence of both leaders and markets internationally, and had negotiated Greece's first bailout last year, and Venizelos was Papandreou's second choice after he failed to convince Lucas Papademos, former vice president of the European Central Bank (ECB), to accept the post.
Bond markets may or may not buy it; they spiked before the announcement, with the rate on 10-year bonds hitting 18.9%, a record, and the cost to insure against default also hit a record. However, they did retreat after the news. The Greek market's initial reaction was positive, as Papandreou also ditched his environment and labor ministers; they were standing in the way of the bailout as they protested both the privatization measures and the loosening of regulations governing the labor market. The Athens stock market index rose 2% and bank shares added up to 4%.
In a statement, UBS analyst Alexander Kyrtsis said of the change, "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." According to the report,however,most economists doubt Greece will be able to fight its way back from the brink of default; its debt totals 150% of the nation's annual economic output.