ATHENS, Greece — Greece's embattled prime minister and main opposition leader agreed Sunday to form an interim government to ensure the country's new European debt deal, capping a week of political turmoil that saw Greece face a catastrophic default that threatened its euro membership and roiled international markets.
As part of the deal, Prime Minister George Papandreou agreed to step down halfway through his four-year term. He and conservative opposition head Antonis Samaras are to meet Monday to discuss who will become prime minister and the makeup of the Cabinet.
The new unity government's main task will be to pass the European rescue package, reached after marathon negotiations between European leaders barely a week ago — a move considered crucial to shoring up the euro. The interim government will then lead the country into early elections, expected early next year.
Officials had been anxious to reach some form of agreement before a meeting of eurozone finance ministers in Brussels on Monday.
"Of course it's a breakthrough," government spokesman Elias Mossialos said. "It is a historical day for Greece, we will have a coalition government very soon, early next week. The prime minister and the leader of the opposition will discuss tomorrow the name of the new prime minister and the names of ministers."
Papandreou sparked the latest crisis by announcing last week that he was taking the hard-fought debt agreement to a referendum. That outraged European leaders, who said such a vote could raise the specter of Athens leaving the common currency — setting off an unpredictable chain reaction that could drag down other European countries.
They also warned a vote would jeopardize the disbursement of a vital $11 billion (€8 billion) installment of Greece's existing $152 billion (€110 billion) bailout, which the country desperately needs to avoid the potential of a catastrophic default within weeks.
In the ensuing market turmoil, Italy — which also faces severe financial difficulties, but is considered too big to bail out — saw its borrowing costs spiral, sparking fears it could be dragged into the fray.
Papandreou withdrew the referendum plan Thursday in the wake of European anger and after it sparked a rebellion among his own Socialist lawmakers, many of whom called for him to resign. The turmoil also pushed the conservative opposition party to publicly declare it would back the debt agreement.
Any interim government that is formed with the support of both major parties will be almost guaranteed to push the European rescue package through parliament, even if it has to be approved by a reinforced majority of 180 of the legislature's 300 lawmakers.
The new European deal would give Greece an additional $179 billion (€130 billion) in rescue loans and bank support. It would also see banks and private investors write off 50 percent of their Greek debt holdings, worth some $138 billion (€100 billion). The goal is to reduce Greece's debts to the point where the country is able to handle its finances without relying on constant bailouts.
Greece's lawmakers must now approve the package, putting intense pressure on the country's leaders to swiftly end the political crisis so parliament can convene and put it to a vote.
A planned meeting with the leaders of all political parties in parliament, which was to take place Monday evening, was canceled after two leftist parties refused to attend, the president's office said.
Sunday's agreement came after a late-night meeting between Papandreou and Samaras called by President Karolos Papoulias at Papandreou's request to end a two-day deadlock. Direct talks had failed to get off the ground because Papandreou had said an agreement had to be reached on a new government before he stepped aside, while Samaras insisted Papandrepou resign before the start of negotiations and demanded quick elections.
An opposition conservative party official said Samaras' New Democracy party was "absolutely satisfied" with the outcome of the talks and that party officials were to hold meetings late Sunday night with Finance Minister Evangelos Venizelos and his advisers to discuss how long it would take to finalize the new debt deal and when elections could be held.
"Our two targets, for Mr. Papandreou to resign and for elections to be held, have been met," the official said, speaking on condition of anonymity to discuss the process.
The Finance Ministry said a late-night meeting between Venizelos and opposition party members determined the "most suitable" date for elections was Feb. 19.Comment on this story
Two turbulent years after coming to power in a landslide election victory, Papandreou has seen his popularity plummet as his government has been forced to severely cut spending while hiking taxes to tackle a runaway deficit and debt that led Greece to become the first eurozone country to seek an international bailout.
Ireland and Portugal have since followed suit, but European leaders have been desperate to ensure other countries with larger economies are not also dragged down.
Associated Press writer Nicholas Paphitis in Athens contributed to this report.