Reshuffle averts fears of collapse in Greece

Greek Prime Minister George Papandreou replaced his finance minister in a broad cabinet reshuffle that won strong support from markets, optimistic that crucial austerity measures will now be passed.

After two days of political chaos that threatened to bring down the government, Germany also appeared ready to provide billions more in aid to carry the debt-ridden country through 2014, after Chancellor Angela Merkel indicated that the private sector would not be forced to share in the pain of a second bailout.

At one point on Wednesday a debt default seemed to be just weeks, if not days, away.

Greek shares are up over five per cent while the euro has recovered much of the ground lost since Wednesday.

Investors have clearly breathed a sigh of relief that Papandreou’s reshuffle will be enough to get his party’s deputies to back fresh austerity proposals.

Papandreou has struggled to garner support for a crucial new package of 28 billion euro (£24bn) in spending cuts and tax increases demanded by the EU and IMF.

The package must be voted through parliament if the country is to continue receiving funds from its bailout.

European Commission President Jose Manuel Barroso reminded Greece’s new ministers to make good on their country’s commitments.

“If Greece does its part, I think the European Union also has to do its part because it is in our joint, it is in our common interest,” he said in a statement. “It is critically important that the signals coming from Greece are clear about that.”

By promoting Evangelos Venizelos, who challenged Papandreou for the party leadership four years ago, to the finance ministry, the Prime Minister will hope he met demands of his deputies.

At a dramatic seven-hour meeting Socialist lawmakers demanded that the prime minister remove inexperienced loyalists from the Cabinet and replace them with more experienced party veterans.