03/19/2012 03:39 EDT | Updated 05/19/2012 05:12 EDT

Greek finance minister Venizelos resigns to head Socialist party

ATHENS, Greece - Greek Finance Minister Evangelos Venizelos resigned Monday after being elected to head the majority Socialist party as the country heads into early general elections.

Venizelos' resignation during a Cabinet meeting came as Greece's second multi-billion euro bailout agreement won formal approval at committee level in Parliament. Lawmakers are to vote on the deal, which is expected to pass, later in the week.

Venizelos was the only candidate for the leadership of the PASOK party in party's elections on Sunday, and formally took over from his predecessor, former Prime Minister George Papandreou, in a ceremony Monday afternoon.

The coalition government has not indicated who will be appointed in Venizelos' place, nor when an announcement will come. Early general elections are expected in late April or early May, though no firm date has been set.

Venizelos has been at the heart of months-long negotiations that resulted in a massive second bailout for Greece and a debt writedown deal with private creditors.

"We have the elections ahead of us and I had the opportunity this morning at a farewell meeting at the finance ministry ... to give my final instructions," Venizelos said after meeting with the country's president, Karolos Papoulias, to inform him of the party election results.

PASOK won a landslide victory in 2009 general elections, but party defections and public anger over austerity measures prompted it to form an interim coalition government with the rival conservatives last November.

Recent opinion polls have seen its support sink to as low as 11 per cent, taking a hit from widespread public anger over repeated austerity measures which have included salary and pension cuts as well as several rounds of tax hikes.

Under Greece's second bailout, the country stands to receive a total of more than €172 billion euros in rescue loans from other eurozone countries and the International Monetary Fund over the next few years, including portions of its original €110 billion bailout that have not been disbursed.

Athens must continue with its austerity measures in order to ensure the funds are disbursed in regular installments, and will be under tight supervision from its creditors.

"We were on a course that could not continue," Deputy Finance Minister Philipos Sachinidis said during the parliamentary committee debate on the bailout. "We did not correct that course soon enough and that is why we are in the situation we are in."

The Bank of Greece predicted the country's will contract by 4.5 per cent in 2012 and remain in mild recession next year, while unemployment will surpass 19 per cent on average this year.

The gloomy predictions in the central bank's annual report overshadow the coalition government's recent success in negotiating financial rescue deals with both private creditors and emergency lenders from the eurozone and International Monetary Fund.

Greece has taken significant steps to reform the economic system since it signed its first bailout agreement in 2010, the bank said.

However, results were "below expectations," it noted.

"The policy pursued did not convince as a whole that it will succeed, because there was a lack of determination for reform," the central bank said. "The changes were treated as orders from the lenders and not as necessary reforms which cannot be postponed without disastrous consequences."

The bank stressed that in order for the situation to improve and confidence to be restored in the economy, Greece's pledges taken in return for its rescue loans must be implemented "to the letter."

Harsh austerity measures, however, have led to frequent strikes and often violent demonstrations. In the latest labour action, dock workers walked off the job Monday at the start of what they have vowed will be rolling 48-hour strikes.

Meanwhile, the International Swaps and Derivatives Association said the payout for holders of credit default swaps — a form of insurance for bonds in case of default — would be a total of about $2.5 billion, as expected.

The ISDA ruled that Greece's bond swap, in which investors took real losses of about 75 per cent on their bondholdings, was reason to trigger the payouts.


Carlo Piovano in London contributed to this report.