Greek turmoil: Prime Minister sacrifices finance chief

Greek Prime Minister George Papandreou sacrificed his finance minister today and put his main socialist party rival into the job in a bid to force through an unpopular austerity plan to avert bankruptcy.

In Berlin, the leaders of Germany and France, Europe's two central powers, called for a quick deal on a second bailout for Greece with voluntary involvement of private bondholders, in accord with the European Central Bank.

"There is no time to lose," French President Nicolas Sarkozy told a joint news conference with Chancellor Angela Merkel.Both voiced support for Papandreou and said the European Union must go on aiding Greece. But they gave no details of how private investors would contribute to the rescue – an issue that has split the euro zone and rattled financial markets.

Nevertheless, their pledge of an early solution was enough to partially reverse a week-long financial market rout, with the risk premium on Greek and Spanish bonds narrowing and the euro regaining ground against the dollar.

The elevation of Defence Minister Evangelos Venizelos to the finance ministry was aimed at securing party backing for a crucial austerity package required for the EU and IMF to disburse emergency loans to keep Greece afloat next month and avoid a default which could unleash global financial turmoil.

Analysts said the socialist heavyweight was a second-best choice after Papandreou failed to persuade respected former ECB Vice-President Lucas Papademos to come aboard, but it enabled him to dump several ministers who had obstructed reforms.

Outgoing Finance Minister George Papaconstantinou, who negotiated a first 110 billion euro bailout for Athens last year and had the confidence of international lenders and markets, was moved to the environment ministry in a crisis-driven reshuffle.

Initial Greek market reaction was positive with bank shares rising by as much as 4 percent and the Athens stock market index up 2 percent.

But bond markets remain spooked by fears of a Greek default and most economists are overwhelmingly skeptical that Greece can ever repay its debt mountain, which has reached 340 billion Euros or 150 percent of the country's annual economic output.