By Lefteris Papadimas and George Georgiopoulos
ATHENS (Reuters) - Greek Prime Minister Alexis Tsipras unveiled a cabinet of anti-austerity veterans on Tuesday, signalling he has no intention of backing away from election pledges despite warning shots from the euro zone and financial markets.
Greek markets endured a second day of turmoil on Tuesday, with bank shares diving and investors fearing the anti-bailout government might be set on a collision course with the country's European Union and IMF creditors.
Promising to reverse budget cuts and renegotiate Greece's huge debts, Tsipras's leftist Syriza party stormed to power in Sunday's snap election on a wave of anger against the German-backed austerity policies that have driven up poverty and left one in four Greek workers out of a job.
Among a team spanning the radical and more pragmatic wings of Syriza, Tsipras named academic economist Yanis Varoufakis as his finance minister. The defence portfolio went to Panos Kammenos, leader of the right-wing Independent Greeks party which is the junior partner in the Tsipras coalition.
Varoufakis, who left a position at the University of Texas to enter Greek politics only in the run-up to the election, stressed he would keep writing a blog which he has used to denounce the austerity policies demanded by Greece's creditors in return for 240 billion euros in bailout loans.
"The time to put up or shut up has, I have been told, arrived," he wrote on his blog. "My plan is to defy such advice."
Varoufakis has railed against the bailouts of struggling euro zone states as "fiscal waterboarding" that risked converting Europe into a "Victorian workhouse".
But speaking to Irish radio, he said on Tuesday he planned to negotiate a solution with lenders, and that he had already had an "encouraging and inspiring" chat with the head of the euro zone finance ministers, Jeroen Dijsselbloem.
"Make no mistake: what is beginning today is a process of deliberation with our European partners," he said.
BANK SHARES DIVE
On the financial markets, yields on Greek three-year bonds jumped above 14 percent. This was up four percentage points since Sunday's vote although down from 16 percent at the beginning of the year, before the European Central Bank announced plans to stimulate the euro zone economy by buying debt issued by the bloc's governments.
A collapse of banking stocks pushed the Athens bourse down by 3.69 percent. (ATG). Investors are worried about Greek banks' liquidity and whether they will have continued access to ECB funding, with an extension to the country's bailout deal with the euro zone due to expire at the end of this month.
Bank of Piraeus (AT:BOPr), Alpha Bank (AT:ACBr) and National Bank of Greece (AT:NBGr) all fell between 10 and 12 percent.
Moody's credit rating agency said uncertainty created by the Syriza victory is negative for Greece's credit rating, adding that it "undermines depositor confidence and has an adverse effect on economic growth prospects".
The government's plan to negotiate a new debt deal has already run into resistance from its euro zone peers, which fear allowing Athens to write off some of its obligations would encourage other troubled countries to seek similar relief.
German Finance Minister Wolfgang Schaeuble said Dijsselbloem would visit Athens, but he would do so without a mandate from his peers.
Europe has shown a willingness to give Athens more time to pay its debts, but has stressed it will not yield to the demands for debt forgiveness.
On Monday Dijsselbloem warned Greeks against excessive expectations following their empathic vote against austerity. "We all have to realise and the Greek people have to realise that the major problems in the Greek economy have not disappeared and haven't even changed overnight because of the simple fact that an election took place," he said.
The new cabinet includes a number of lawyers, professors and some former journalists. Former Communist politician Yannis Dragasakis - who in the run-up to the vote demanded an investigation into Greece's bailout - took the deputy prime minister's role that is expected to oversee economic issues.
The government, installed within 48 hours of Sunday's win, is expected to pursue social welfare policies such as handing out free electricity and food stamps to the poor and cutting heating oil prices, alongside a crackdown on tax evasion.
On the labour front, Tsipras is expected to reverse a cut to the minimum wage and restore collective bargaining agreements abolished under the bailout out deal, as well as instituting a 5-billion-euro plan of incentives for firms to hire workers.
Privatisation plans are expected to be reconsidered. Syriza officials have also promised to take on business tycoons, though in the run-up to the vote they said little about whether they will implement earlier pledges to slap new taxes on big Greek shipowners.
Tsipras has also promised that he will scrap unpopular crisis-era taxes, prompting critics to question how he will be able to afford his lavish social spending while battling depleting cash coffers and exasperated foreign lenders.
Syriza is also expected to freeze public sector layoffs as demanded under the bailout, and stop an unpopular evaluation process for civil servants.