Greek PM to reshuffle cabinet amid political turmoil

Concerns over the political turmoil in Greece ran high yesterday amid growing prospects that the Mediterranean nation may be headed for a calamitous default with investors, potentially igniting a new phase in Europe's debt crisis.

A chill went through global markets as embattled Greek prime minister George Papandreou initiated a risky process to push his parliament to pass another round of austerity measures. Failure to pass the cuts could lead the EU and IMF holding back bailout funds, leaving Greece short of cash to pay its creditors as early as next month. Some economists warn that such an outcome could destabilise the global financial system.

Riot police clashed with hundreds of protesters in central Athens yesterday as a major anti-austerity rally ended up in an orgy of violence outside parliament.

Meanwhile, even as the streets clashes continued, Papandreou made a failed bid to stitch up a coalition government to ensure approval of the package.

Addressing the nation late in the night, he said, he would reshuffle his cabinet and call for a vote of confidence this weekend, putting his job on the line in an attempt to pressure politicians into passing the hugely unpopular package next week.

According to analysts, the political drama being witnessed in Greece could pose a broader risk to the economic recovery underway in Europe and the US. Some experts say a Greek default could have an impact similar to the collapse of Lehman Brothers in September 2008, adding, it could trigger a run of bank failures that could ripple across the globe.

The high stakes could force the Europeans to keep the aid pipeline to Greece primed as pressure mounts on EU leaders to end weeks of infighting over how and whether to continue propping Athens up.