Amid growing fears of a governmental collapse in Athens, Prime Minister Giorgios Papandreou on Thursday scrapped plans for a bailout referendum and moved to start talks on a national unity government. He has, however, refused to step down, saying that new elections would mean a Greek exit from the euro zone.
German Chancellor Angela Merkel would seem to have gotten her way yet again. Not even a day after she and French President Nicolas Sarkozy suspended aid payments to Greece pending the results of a bailout referendum called by the government in Athens, Prime Minister Giorgios Papandreou has backed away from his plan.
On Thursday, a government spokesman in Athens announced that Papandreou was acceding to demands that he enter into negotiations with the opposition on the formation of a cross-party caretaker government. Shortly thereafter, he informed his cabinet that he was scrapping plans for the referendum, according to an Associated Press report.
"There is no reason to have a referendum if there is consensus between the two large parties," an official said.
The move comes following a day of intense pressure from members of Papandreou's Socialist party for the prime minister to resign ahead of a confidence vote that had been scheduled for Friday. With the opposition likewise calling for new elections, it had begun to look doubtful whether Papandreou could have survived such a vote.
A transitional government, it is hoped, would secure payout of a desperately needed €8 billion tranche from the European Union aid package passed in early 2010. Papandreou was holding an emergency cabinet meeting on Thursday to discuss the move.
On Monday, Papandreou had announced plans to hold a national referendum on the EU bailout package for his country and the concurrent austerity measures imposed by his government. The announcement sent global markets plunging and outraged both Merkel and Sarkozy.
In a Wednesday night meeting in Cannes, where leaders of the world's top economies are gathering for the G-20 summit, the two made clear to Papandreou that a no vote would likely mean the end of Greece's membership in the euro zone. A disorderly Greek insolvency would almost surely have followed.
Merkel and Sarkozy were particularly outraged at not having been informed of Papandreou's intention to hold a referendum before he announced in on Monday. Furthermore, his announcement came just days after EU leaders, meeting in Brussels, had assembled yet another vast aid package for Athens and agreed to slash the country's debt by 50 percent. Global markets had initially reacted favorably to the news.
Even as his cabinet had initially supported Papandreou's referendum plan, it became increasingly clear on Thursday that some in his party were backing away. Two Socialist lawmakers announced they would defect in a confidence vote scheduled for Friday, virtually eliminating the already razor-thin parliamentary majority Papandreou enjoyed.
'Something We Can Live Without'
More concerning for the prime minister were calls from several of his ministers for a national unity coalition government to be formed to approve the bailout package and eliminate the need for the referendum. On Thursday, Papandreou's own finance minister broke ranks. "Greece's position within the euro area is a historic conquest of the country that cannot be put in doubt," said Finance Minister Evangelos Venizelos. Something of such great importance, he said "cannot depend on a referendum."
Despite his newfound willingness to form a unity government with the opposition, Papandreou said on Thursday that he was not resigning, adding that new elections would mean Greece's departure from the euro zone. Indications are that Friday's confidence vote will go ahead as planned.
European Union leaders have long been calling for a national unity government in Athens, particularly given the conservative opposition's ongoing refusal to support the austerity measures that Europe has been demanding as a condition for aid. Merkel and Sarkozy heaped on the pressure on Wednesday, essentially opening the door for a possible Greek exit from the euro zone.
On Thursday, Luxembourg Prime Minister Jean-Claude Juncker, who also heads the euro group made up of euro-zone finance ministers, said that officials were looking at possible scenarios for Greece's departure from the euro zone. Jean Leonetti, France's Europe minister, said "Greece is something we can get over, something we can live without," in an interview with RTL radio.