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Greek government teeters over bailout referendum

By Nicholas Paphitis

Associated Press

Published: Thursday, Nov. 3 2011 5:46 a.m. MDT

Greek Prime Minister George Papandreou speaks with the media as he leaves a G20 summit in Cannes, France on Wednesday, Nov. 2, 2011. Greek Prime Minister George Papandreou was flew to the chic French Riviera resort of Cannes on Wednesday to explain himself to European leaders furious over his surprise referendum on a bailout deal that took them months to work out.

Markus Schreiber, Associated Press

Enlarge photo»

ATHENS, Greece — Greek Prime Minister George Papandreou fought an increasingly improbable battle for political survival on Thursday, hours after European leaders told him he had endangered a massive bailout plan by calling for a referendum.

The instability sent ripples throughout Europe, with the government of Italian Premier Silvio Berlusconi teetering as well after its failure to come up with a credible plan to deal with its dangerously high debts.

In Athens, several ministers and governing party lawmakers called for Papandreou to step down in favor of a coalition national unity government that would approve the bailout package without a referendum, and ensure the country receives vital funds to prevent imminent bankruptcy. Papandreou was meeting with his ministers in an emergency meeting Thursday.

That emerging scenario helped calm frayed nerves in the markets. Athens' main stock market outperformed its peers, rising by 2 percent in midday trading following three days of big falls.

Attention was focused on Athens in the French resort of Cannes, where the leaders of the world's economic powerhouses were gathered to solve Europe's debt crisis, which threatens to push the world back into recession.

Papandreou's proposal Monday night to put the hard-fought bailout package to a referendum horrified Greece's international partners and creditors, triggering turmoil in financial markets as investors fretted over the prospect of a disorderly default and the country's exit from the eurozone.

The crisis mounted early Thursday when Papandreou's own finance minister, Evangelos Venizelos, returned from Cannes with Papandreou only to break ranks and declare the referendum a bad idea.

"Greece's position within the euro area is a historic conquest of the country that cannot be put in doubt," he said, adding that it "cannot depend on a referendum."

Venizelos said the country's attention should be focused on getting a crucial installment of bailout funds quickly. Europe reacted to Papandreou's referendum plan by postponing payment.

In Cannes, the leaders of France and Germany told Papandreou that any referendum should be on whether Greece wants to stay in the eurozone or not, suggesting that it be held no later than Dec. 4. But delaying payment until then could be disastrous: Greece has said that without the next €8 billion installment of its existing bailout fund, the country will run out of funds in mid-November.

"The only realistic proposal so that the country doesn't collapse" is to create a national unity government and later hold early elections, said party stalwart Vasso Papandreou, who is not related to the prime minister. "Everyone must rise to the occasion."

Alongside his referendum pledge on Monday, Papandreou booked a confidence vote on Friday. With open rebellion among his ranks, it was unclear whether it could survive that long.

Earlier Thursday, Socialist lawmaker Eva Kaili said she would not support the government in the confidence vote. Without her support, the Socialists hold a single seat majority in the 300-member parliament.

And Socialist deputy Dimitris Kremastinos said the prime minister's credibility was at stake.

"The prime minister must summon a meeting of party leaders to issue a declaration that no referendum will be held on the euro," he said, and added his voice to calls for the creation of a national unity government.

Meanwhile, Greek EU commissioner Maria Damanaki urged the country's party leaders to find a quick solution "to secure the country's continued membership of the eurozone and the implementation" of last week's bailout agreement.

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