Greece ready to drop referendum

 

November 4, 2011 - 10:51AM

Greek Prime Minister George Papandreou has backed away from a proposed referendum on staying in the euro, which raised fears of a disorderly default.

Greek Prime Minister George Papandreou says he is ready to scrap plans for a referendum on an EU bailout plan, as top European leaders continued to pile the pressure on the embattled leader.

Papandreou resisted fresh calls to resign as Greek Finance Minister Evangelos Venizelos cautioned that his country needed an eight-billion-euro ($10.6 billion) slice of aid by December 15, a package which has been put on ice since the prime minister's shock announcement,

Called off a referendum ... Greek Prime Minister George Papandreou. Photo: Reuters

"The referendum was never an end in itself," Papandreou told an emergency cabinet meeting called a day after angry EU leaders summoned the prime minister after being wrong-footed by the referendum plan.

Papandreou now faces a knife-edge confidence vote after his referendum plan - supposed to save both Greece and the euro zone from disaster - backfired disastrously.

But even if his socialist government survives the parliamentary vote, Papandreou's days as Greek leader looked numbered after a deal with his cabinet under which, government sources said, he agreed to stand down after negotiating a coalition with the conservative opposition.

Meanwhile, German Chancellor Angela Merkel insisted at a meeting of G20 top economies in the southern French city of Cannes that actions, not words, were what mattered.

"What's important is that there is a quick 'Yes' to the October 27 decisions," she added, referring to last week's offer by euro zone leaders to write down Greek debt in exchange for imposing strict fiscal controls.

EU President Herman van Rompuy and European Commission President Jose Manuel Barroso also ratcheted up the heat on Papandreou, saying that Greece had to stick to the EU bailout plan.

On Wednesday, a livid Merkel, French President Nicolas Sarkozy and top EU officials had called Papandreou to Cannes to explain his move which led to speculation that Greece would have to leave the euro.

Change of heart

Papandreou's apparent change of heart emerged after the conservative opposition - which had vehemently objected to the government's loan agreements with its creditors - said it would support the 100-billion-euro EU bailout.

"We had a dilemma - either true assent or a referendum. I said yesterday, if the assent were there, we would not need a referendum," Papandreou said, according to a statement from his office.

"We must hail the fact that [main opposition party] New Democracy will vote for the loan deal."

Later, Papandreou told members of his socialist PASOK party that Greece had to implement the terms of a hard-fought package designed to save the country from bankruptcy, or face a humiliating exit from the 17-nation euro zone.

"Rejecting the plan via a no vote in a referendum, holding early elections, or not getting a [parliamentary] majority in favour of the package would mean leaving the euro."

Holding early elections would be "catastrophic," he cautioned.

At the same meeting of PASOK MPs, Venizelos called on Papandreou to formally take the referendum plans off the table and said that Greece "absolutely needed" its next bailout package by December 15.

Papandreou hailed what he termed "the start of a new political culture in the country" and called for "co-operation" from the opposition at this time of crisis.

Election call

But the conservative leader of Greece's main opposition, Antonis Samaras, whose party has 85 seats in the 300-member parliament, reiterated calls for a transition government to keep the debt deal afloat and to call snap elections.

"I ask for the formation of a temporary transition government with the exclusive responsibility to immediately hold elections, and ratify the loan deal under the present parliament," Samaras said in a televised address.

It marked an abrupt about-face by Samaras who has consistently opposed the loan agreements negotiated by the Greek government with its creditors - the EU, IMF and European Central Bank - on the grounds that they stifled growth and worsened recession.

But on Thursday he said: "The new loan deal is inevitable and must be secured."

Nevertheless, he later called on Papandreou to stand down, accusing him of lying in a bid to cling onto power in rowdy scenes in the Greek parliament.

With an eye towards a crunch confidence vote on Friday that could spark the fall of the government, Papandreou called for unity within his party.

"The confidence vote is particularly important and guarantees that decisions taken by the government can proceed," said Papandreou.

He also appealed for "stability" in his parliamentary group amid a rebellion in the ranks.

The confidence vote, at the end of three days of debate, was expected to occur around midnight local time.

Papandreou's decision to put the 100-billion-euro bailout package, clinched in the early hours of last Thursday morning, to a vote stunned fellow European leaders and prompted panic on the financial markets.

Greece's stock exchange collapsed by nearly seven per cent after the announcement and other European bourses fell by around five per cent as investors feared the euro zone was back to square one in tackling the crisis.

But despite the uncertainty on a tumultous day for Greek politics, the stock market in Greece closed with gains of 1.86 per cent.

AFP, Reuters

Greece ready to drop referendum