TELLE Bank of Greece (CR)

ATHENS—Greece's ruling Syriza party suffered a major embarrassment on Wednesday night when judges struck down its plan to revamp Greece's media sector, after a weekslong power struggle that produced allegations of blackmail and "fascist" methods.

Greece's supreme administrative court, the Council of State, ruled the government, led by the left-wing Syriza party, acted unconstitutionally by licensing TV broadcasters itself, a power that the constitution reserves for an independent media regulator.

In early September, the government auctioned broadcast permits for only four private TV channels, leaving several existing TV stations facing closure. The court ruling annuls the government's auction and removes the threat of forced closures.

The government, led by the antiestablishment left-wing movement Syriza, billed its reform of Greek TV as necessary to combat corruption and dismantle a network of vested interests among media moguls, banks and the political establishment.

Greece's media and conservative-led opposition accused Syriza of a power grab and an attack on free speech.

Government spokeswoman Olga Gerovasili criticized the court ruling for annulling €255 million (about $278 million) of auction revenue, which she said would have paid for 14,000 more children to go to kindergarten and 4,000 more nurses to work in hospitals.

In recent days, the looming court defeat has forced Prime Minister Alexis Tsipras to publicly defend his controversial aide, Minister of State Nikos Pappas, who handled the TV license auction and is viewed as the premier's most powerful adviser.

The court case has dealt a blow to Syriza's image as a new broom sweeping clean Greece's murky politics. The Syriza-appointed president of the Council of State, Nikos Sakellariou, had resisted media owners' appeals against the license auction. But he faced opposition from other judges, including Athanasios Rantos.

On Oct. 13, leaked emails about Mr. Rantos's private life appeared on a Greek news website, after which Greece's justice ministry ordered a disciplinary investigation against the judge.

Other judges were incensed. The Union of Judges and Prosecutors issued a statement condemning "an attempt to blackmail the supreme court" with tactics "reminiscent of methods used by fascist regimes." The statement didn't identify a culprit. Amid acrimony and divisions at the court, a narrow majority of judges voted to annul the government's auction late Wednesday.

The TV shake-up was the centerpiece of Syriza's effort to challenge the vested political and business interests that Messrs. Tsipras and Pappas say have long controlled Greek public life.

Syriza, an upstart movement with roots in anticapitalist protest, shot to power in 2015 amid Greece's deep economic crisis, promising radical change at home and in Europe. It has struggled on both fronts.

Last year, Mr. Tsipras fought and failed to overturn the tough austerity conditions of Greece's international bailout. German-led creditors forced him to sign a tough new bailout deal or face Greek expulsion from the euro.

This year, seeking to maintain his radical credentials, Mr. Tsipras took on some of Greece's business oligarchs, whose conglomerates control much of the country's media as well as other sectors from shipping to public works. But Mr. Pappas's TV-permit auction soon ran into trouble.

Critics said Syriza's media reform looked more like a bid to create its own network of power relationships with new, friendly media owners. Syriza's relations with a winning TV-license bidder, Yiannis Kalogritsas, and a small bank that financed him, drew particular scrutiny.

Greece's independent central bank, angering Syriza officials, submitted a report to parliament and prosecutors that questioned the small lender's loan practices and the quality of Mr. Kalogritsas's collateral. Mr. Kalogritsas withdrew his bid and said he was a victim of Greece's establishment, which was treating him like a criminal.

While the Bank of Greece was probing the lender, prosecutors raided a business owned by the central-bank governor's wife, adding to fears of growing political intervention in Greece's judiciary.

The perception of pressure on the Council of State deepened those fears and contributed to the government's defeat on Wednesday, say people close to the judiciary.

Write to Marcus Walker at marcus.walker@wsj.com and Nektaria Stamouli at nektaria.stamouli@wsj.com

(END) Dow Jones Newswires

October 27, 2016 02:15 ET (06:15 GMT)

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