Debt plan turmoil grows within Greece

Even Greeks themselves had trouble tracking everything that happened on a day of whipsaw political swings in their country.

Less than 24 hours earlier in France, Prime Minister George Papandreou sparked a global crisis when he stuck up for his nation's democratic right to a referendum on Europe's rescue plan for the debt-racked nation.

But as soon as he returned home Thursday, Papandreou called off the referendum.

One moment, the Greek leader commanded the "full backing" of his Cabinet; the next, he didn't. He was stepping down, some said; he was staying on, others countered.

The dramatic developments overshadowed the Group of 20 summit of world leaders in the French resort of Cannes, where President Barack Obama implored European leaders to swiftly work out a plan to deal with the continent's economic crisis, which threatens to push the world back into recession.

Papandreou's referendum plan outraged the leaders of other European Union nations who had worked for months on the deal. Greece's creditors, the financial markets and investors worried over the prospect that Greece could be forced into a disorderly default.

Faced with mounting opposition at home and abroad, Papandreou withdrew the referendum call after the main opposition conservatives indicated they backed the debt deal. With them potentially on board, his finance minister argued, there was no longer a need to put the issue to the Greek people.

Stocks rose sharply in the United States and Europe on news that the referendum plan had been scrapped, as well as by a surprise move by the European Central Bank to cut interest rates. The Dow Jones industrial average rose 208 points to close above 12,000 for only the third time since early August.

But Papandreou's government is still in danger. He faces a crucial confidence vote in Parliament at midnight today, after two days of acrimony that saw many of his own lawmakers and ministers rebel. Many asked for his resignation, furious that his insistence on a referendum had endangered the debt deal and led European leaders to question Greece's treasured participation in the euro, the common currency used by 17 EU nations.

In an address to Parliament, Papandreou stressed his only interest was Greece's well-being, hinting he was willing to eventually step down.

"I don't care about being re-elected. I am interested in saving the country," he said, adding that he was open to the mounting calls for the creation of a transitional government that would secure the debt deal and make sure Greece receives the next, vital installment of its existing bailout funds. After that, he said, he would be open to holding elections.

"Let everything be discussed — the makeup of the government and anything else. … I am not glued to my seat," Papandreou said.

An angry Antonis Samaras, the head of the main opposition conservatives, insisted Papandreou had to go and dispelled any impression of unity. He argued he had agreed to back the vital new deal and demanded quick elections — within the next six weeks if possible.

"Mr. Papandreou pretends that he didn't understand what I told him," he said. "I called on him to resign."

Papandreou "nearly pulled the universe apart to supposedly persuade me to agree to something that I had already said was unavoidable."

He then led his lawmakers in walking out of the parliamentary debate on the confidence vote.

Papandreou's surprise referendum announcement so startled world leaders that French President Nicolas Sarkozy and German Chancellor Angela Merkel, two architects of the debt deal, summoned Papandreou to Cannes for emergency talks Wednesday.

There, they made clear that if any referendum were held, it would determine whether Greece stayed in the eurozone, and said Athens wouldn't get its $11 billion installment of last year's $152 billion bailout until the dust had settled.

On Thursday, Obama declared his solidarity with Sarkozy and Merkel, telling G20 leaders that resolving the financial crisis was "the most important aspect of our task over the next two days."

The drama in Greece sent immediate ripples throughout Europe. Premier Silvio Berlusconi's government in Italy was teetering after it failed to come up with a credible plan to deal with its dangerously high debts, and Portugal demanded more flexible terms for its own bailout.

Polls indicate the Greek public is close to the breaking point after more than 20 months of harsh austerity cuts and tax hikes. Recent opinion surveys show 90 percent oppose Papandreou's policies.

The two other European governments besides Greece that have received bailouts — Portugal and Ireland — have seen their governments fall.

Information from the Los Angeles Times and Associated Press was used in this report.

Debt plan turmoil grows within Greece 11/04/11 [Last modified: Friday, November 4, 2011 12:45am]

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