Petros Giannakouris, Associated Press
ATHENS, Greece — Prime Minister George Papandreou and his chief rival agreed Sunday night to create a new unity government, under a new prime minister, that will move ahead with the country's debt-relief deal with the EU and then hold new elections. Papandreou agreed to resign once the details are completed Monday.
The agreement appeared to break a political deadlock that had paralyzed Greece in the face of an acute financial crisis that threatened to infect other eurozone nations, especially Italy. European leaders see the debt-relief deal struck with Greece on Oct. 26 as crucial to containing the crisis in Greece and insulating Italy, a much larger economy whose political leaders have also struggled to cut budgets and deal with heavy debt.
The agreement in Greece could not have come soon enough for its European partners, who have pressed the country hard to forge a broader political consensus behind the debt deal. But it was not clear whether the agreement would provide the certainty that skeptical investors are demanding to calm turbulent financial markets.
The debt deal requires that the Greek Parliament pass a new round of deeply unpopular austerity measures, including layoffs of government workers, in a climate of growing social unrest. It also calls for permanent foreign monitoring in Greece to ensure that it makes good on its pledges of structural changes to revitalize its economy, a requirement that many Greeks see as an affront to national sovereignty.
With a narrow and eroding majority in Parliament, Papandreou's Socialist government found that it could not unify to push through such measures on its own, but Antonis Samaras, the leader of the conservative New Democracy party, opposed many of the debt deal's provisions and demanded Papandreou's resignation and a snap election. After days of frantic political wrangling, Papandreou survived a confidence vote in Parliament on Friday, setting the stage for Sunday's compromise.
The new unity government is widely expected to be led by a nonpolitician, and to govern for several months, long enough to implement the debt deal and pass a budget for 2011. The name of the new prime minister and the composition of the new Cabinet are not expected to be announced until Monday, when the leaders will meet again, according to a statement Sunday night by the Greek president, Karolos Papoulias, who moderated the talks on Sunday.
In a statement early Monday, the Greek Finance Ministry said delegations from the Socialist Party and New Democracy met Sunday "to discuss the time frame of the actions" to implement the debt deal, and added that the two parties regarded Feb. 19 as "the most appropriate date for elections."
In reaching the agreement, Papandreou agreed to meet Samaras' demand that he step down as prime minister, while Samaras agreed to back the debt deal and a seven-point plan of priorities proposed by Papandreou that would essentially commit the new government to the terms of the debt deal.
Samaras is not expected to play a role in the unity government, but would be New Democracy's candidate for prime minister in the general election.
In many ways, a new interim government for Greece buys time for European leaders to put together a stronger bailout mechanism that would protect larger economies from the risk of default, chief among them Italy. High debt, low growth and the diminishing credibility of Prime Minister Silvio Berlusconi have made that nation increasingly vulnerable.
"The decision is very positive, because it will appease the markets and because it shows that Greek authorities are doing what foreign leaders want them to do — to get on with implementing the conditions for the EU debt deal," said Athanassios Papandropoulos, an economist and commentator for the conservative Greek newspaper Estia.
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