Athens: A string of parliamentary resignations on Thursday threatened to thwart Greek Prime Minister George Papandreou's plan to reshuffle his cabinet and pass austerity measures needed to save the nation from default.
The political turmoil raised uncertainty over the Socialist cabinet's five-year plan for tax hikes, spending cuts and state property selloffs demanded by its bailout lenders, spooking investors who fear the problems will infect global markets.
In an address to parliament, Papandreou said he would stick to the course of reforms and continue to seek a wider consensus among Greece's political parties.
"Our response to the challenges we face is stability and to stay on our course of reforms," he said.
However, analysts said it was increasingly unclear whether Papandreou would be able to form a new governing team and get the measures approved amid the political chaos, which follows nationwide strikes and violent protests in Athens on Wednesday.
"It will be very hard now to find good people to form a government now. They don't trust (Papandreou) after all the flip-flops he has made," said former finance minister Stefanos Manos. "Who will make privatisations now in all this turmoil?"
Ruling party lawmakers were holding a caucus meeting of the parliamentary group to debate the government's policies.
"We are not governing the country the way we should... We are going from depth to depth, from dilemma to dilemma," ruling party deputy Nikos Salayannis said outside parliament.
Two other Socialist deputies stepped down on Thursday in protest and will be replaced by other party members. World stocks hit a three-month low, the euro tumbled and the cost of insuring Greek debt against default hit another record high.
"This does nothing to reduce fears that some form of default will eventually take place," Ben May of Capital Economics said after the resignations.
Greek Finance Minister George Papaconstantinou said ahead of the caucus meeting that the party should remain stable.
"There is only one goal for all of us: stability, to keep the country and the economy on its feet, to continue without interruption the financing of the country by its lenders," Papaconstantinou told reporters.
Prospects for a disastrous, disorderly outcome to the Greek crisis are beginning to show up on financial markets even though many investors still don't think it will happen.
For its part, the International Monetary Fund said continued financial support for Greece was subject to Athens adopting already agreed economic reforms.
Euro zone sources said earlier that the IMF would release the desperately needed next installment of Greek aid in July.
But other sources said Germany, a major contributor to EU-funded bailouts, wants to postpone until September an EU deal on a new 120 billion euro rescue programme due to disputes over how to involve private creditors.
Berlin also wants to postpone the deal to work out a compromise on private creditors that does not look like a politically risky climbdown by Chancellor Angela Merkel. That means an EU summit next week is unlikely to yield a final deal on the new Greek bailout.
Reflecting growing international frustration at the lack of political will for reform in Greece, the European Commission warned that Athens must implement its programme of austerity measures to keep receiving aid.
"The government and the political forces in Greece have to take the decisions, assume their responsibilities in order to support this programme," Commission spokesman Amadeu Altafaj told a regular news briefing.
In the reshuffle, Papandreou may seek to replace Papaconstantinou, the main architect of hugely unpopular budget cuts demanded by the EU and the IMF as part of Greece's 110 billion-euro bailout last year.
Former ECB Vice-President Lucas Papademos is most frequently mentioned as a candidate to replace Papaconstantinou, who Greek media have said may be on his way to the Foreign Ministry.
Papademos' office said he was out of the country on Thursday and not available for comment.
Tax rises and spending cuts worth 6.5 billion euros ($9.4 billion) are planned this year, doubling already agreed measures that have driven unemployment up to a record 16.2 percent and extended a deep recession into its third year.
The EU and IMF have demanded the new 5-year austerity plan as a condition to release the next tranche of 12 billion euros in aid, which Athens partly needs to pay back debt that matures in August.
"I can't believe they are doing this (political wrangling), with all the money they are being offered," a European central banker told Reuters on condition of anonymity.
The plan includes a crackdown on tax evasion and new taxes on luxuries like yachts. The euro zone member's 750,000-strong state workforce would be cut by a fifth. It also aims to raise 50 billion euros by selling off state-owned firms.
On Wednesday, tens of thousands of Greeks massed outside parliament to demonstrate against the measures, while rioters threw petrol bombs at the Finance Ministry and police fired teargas to break up the crowds.
Opposition leader Antonis Samaras said the only way out of the crisis was early elections. Analysts said that would happen only if the government failed to get a vote of confidence.
"I think that Greek politicians are mature enough and will vote for the mid-term plan," said Gikas Hardouvelis, chief economist at EFG Eurobank. "What they don't have is the maturity to implement the hard austerity measures that it includes."
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