Greek deputy minister resigns over bailout stance

ATHENS (Reuters) - Greece's deputy labour minister resigned on Monday saying the government was not being aggressive enough in pushing for changes to an unpopular bailout, becoming the third cabinet member to quit the fledgling coalition in as many weeks.

The resignation is a new setback for Prime Minister Antonis Samaras, whose government had already stumbled to a rocky start when his initial pick for finance minister stepped down over health problems.

"The sole reason for my resignation is my personal conviction that the issue of renegotiating with the troika, as well as the correction of significant distortions in labour, pension, social security and welfare issues, should have been emphatically put on the table from the start," Nikos Nikolopoulos wrote in his resignation letter.

Analysts said the resignation was far from a fatal blow to the government but suggested internal rifts were emerging over the coalition's stance on renegotiating the bailout with the three lenders - the European Union, the European Central Bank and the International Monetary Fund.

The government initially demanded numerous changes to the rescue package when it took power last month, but has struck a more conciliatory tone in recent days as it faces the prospect of running out of cash without more aid.

"It is an indication that the government will face internal problems between groups pushing for a 'hard' and 'soft' stance towards the troika and the terms of the bailout," said Theodore Couloumbis, political analyst at Athens-based think-tank ELIAMEP.

The challenge facing the coalition was underscored when a think-tank on Monday projected the economy would contract a steeper-than-expected 6.9 percent this year, a tumble that will further hamper efforts to cut the deficit and bring yet more pain to Greeks.

Such a decline would mean Greece's economy has shrunk by a fifth since the end of 2007, according to the data from the influential IOBE think-tank, formerly run by the country's new finance minister Yannis Stournaras.

He replaced banker Vassilis Rapanos who resigned as finance minister last month after being hospitalised days after he was named to the post. A deputy shipping minister also quit after it emerged he had run afoul of a law that prohibits cabinet members from owning offshore companies.

Nikolopoulos's resignation came hours after Samaras won a confidence vote in parliament and pledged to win back the trust of foreign lenders by pushing ahead on privatisations and long-discussed structural reforms. All 179 deputies from the three-party coalition, including Nikolopoulos, backed the motion in the 300-seat parliament.

Samaras's government immediately named a replacement for Nikolopoulos, and said it was baffled by the resignation.

"There is no reasonable explanation for this," government spokesman Simos Kedikoglou told reporters.

"The negotiation with the troika has not started yet and only yesterday he voted in favour of the government. Not everyone is cut out for tough times."

CHANGING POLICIES, NOT TARGETS

The government has tried in recent days to lower Greek expectations of a swift overhaul of the harsh austerity terms included in the bailout, and tried to focus on asset sales and reforms as the first step to regaining credibility with lenders.

It has said it does not want to change targets in its bailout, but only policies it says are worsening the recession - prompting an outcry from the opposition that says the government has already backtracked on pledges made before the June 17 election.

"They have turned the June 17 mandate for renegotiation and disengagement from the bailout into plans for its strictest implementation," said radical leftist Syriza leader Alexis Tsipras. "They used the drachma as blackmail and they will pay. They betrayed the popular mandate and they will apologise."

Samaras's government is juggling opposing demands from home and abroad.

Faced with deep anger at wage and spending cuts in the 130-billion-euro bailout and an emboldened leftist opposition waiting on the sidelines, Samaras has promised long-suffering voters the punishing terms of the rescue will be softened.

But the government, facing bankruptcy without its next tranche of aid, has to sing a different tune abroad - promising that Greece will stick to its prescribed path of austerity in the hope of convincing lenders it deserves more time, money and flexibility.

Finance Minister Yannis Stournaras says he has already been warned by visiting officials from the lenders that he will face a grilling at Monday's meeting of euro zone finance ministers.

Officials from the troika ended a short initial visit to Athens to meet government officials on Sunday and are due to return later in the month for more substantial discussions on Greece's faltering progress in hitting its targets, before deciding whether to disburse the next instalment of aid.

Athens has acknowledged it is failing to keep its bailout pledges, and blames this largely on a deeper than expected recession and two months of political limbo due to repeat elections in May and June.

Debt-laden Greece is now in its fifth year of recession, and nearly one out of four Greeks is out of work.

Samaras's victory in last month's election has eased - but failed to fully quell - concern the country is at risk of crashing out of the euro zone.

(Additional reporting by Karolina Tagaris and George Georgiopoulos; Writing by Deepa Babington; Editing by Andrew Heavens)