Greek PM Papandreou faces unity challenge over bailout

Greek PM George Papandreou at the presidential palace in Athens (5 Nov 2011) It is not yet clear what Mr Papandreou's role in a coalition government would be

Greek PM George Papandreou has said efforts to form a new government of national unity will get under way soon.

Mr Papandreou said these were "critical times" as he attempts to push a vital EU bailout deal through parliament.

He was speaking after talks with President Karolos Papoulias, a day after narrowly winning a parliamentary confidence vote.

The main opposition New Democracy party wants snap elections and says it will not join a Papandreou-led coalition.

The party's leader, Antonis Samaras, says Mr Papandreou is "dangerous for Greece" and must resign.

Mr Samaras is due to meet the president on Sunday.

Mr Papandreou says early elections would be "catastrophic" for Greece, and the bailout must be agreed first.

Without the bailout funds, Greece may go bankrupt before the end of the year.

Mr Papandreou said he had gone to the presidential palace on Saturday to inform Mr Papoulias of his "intention to contribute decisively to the creation of a government of the widest possible consensus".

That government must have as its focus the ratification of the agreement reached by EU leaders on 27 October, he said.

That hard-fought package offers loans and debt reduction in exchange for drastic spending cuts and austerity measures.

"These are critical times. In the immediate future the necessary process will begin to form the widest possible consensus government," said Mr Papandreou.

Analysis

Mr Papandreou said he would contribute decisively to the new government, but it is by no means clear whether he intends to lead it. The main opposition says he must resign before it takes part.

In short, Greek politics is in chaos at a time when stability is urgently needed.

Greece's woes have spread uncertainty in the markets which has compounded Italy's debt problems. The cost of borrowing has shot up for Italy, and Prime Minister Silvio Berlusconi is under intense pressure too.

The instability is spreading.

Earlier, said he was concerned that "a lack of co-operation could trouble how our partners see our will and desire to remain in the central core of the European Union and the euro".

Mr Papandreou has hinted that he could stand aside if it would enable progress, and the BBC's Mark Lowen in Athens says it is looking increasingly unlikely that Mr Papandreou will lead a future coalition.

Suggestions are emerging that Finance Minister Evangelos Venizelos could replace him as interim prime minister. He has previously said elections could be held once procedures for securing the EU bailout package were finished.

'Catastrophic'

Greece's mounting debt crisis and the implementation of austerity measures have proved hugely unpopular with the public, prompting widespread protests, strikes and occasional bursts of violence.

Eurozone deal

  • Private banks holding Greek debt accept a 50% loss
  • European Financial Stability Facility (EFSF) to be boosted to 1tn euros ($1.4tn:£880bn)
  • Banks told to recapitalise by 106bn euros

But if Greece defaults on its debts, the cost of borrowing would rocket for other countries, potentially leading to a new banking crisis.

Earlier this week, Mr Papandreou shocked EU partners and sent markets into turmoil by calling for a national referendum on the deal which they thought had been secured.

He faced calls to resign even from within his own party, and although the plan was abandoned the confidence vote went ahead.

The late-night vote was on a knife-edge, but the government eventually won with 153 votes to 145.

Bankruptcy threat

On Saturday, German Chancellor Angela Merkel, a key figure in negotiating the deal for Greece, said it could take a decade for Europe to resolve its debt crisis and that this could only be done by countries placing legal limits on their debts.

Athens and EU flag What went wrong in Greece?

What went wrong in Greece?

An old drachma note and a euro note
Greece's economic reforms, which led to it abandoning the drachma as its currency in favour of the euro in 2002, made it easier for the country to borrow money.

What went wrong in Greece?

The opening ceremony at the Athens Olympics
Greece went on a big, debt-funded spending spree, including paying for high-profile projects such as the 2004 Athens Olympics, which went well over its budget.

What went wrong in Greece?

A defunct restaurant for sale in central Athens
The country was hit by the downturn, which meant it had to spend more on benefits and received less in taxes. There were also doubts about the accuracy of its economic statistics.

What went wrong in Greece?

A man with a bag of coins walks past the headquarters of the Bank of Greece
Greece's economic problems meant lenders started charging higher interest rates to lend it money. Widespread tax evasion also hit the government's coffers.

What went wrong in Greece?

Workers in a rally led by the PAME union in Athens on 22 April 2010
There have been demonstrations against the government's austerity measures to deal with its debt, such as cuts to public sector pay and pensions, reduced benefits and increased taxes.

What went wrong in Greece?

Greece's problems have made investors nervous, which has made it more expensive for other European countries such as Portugal to borrow money.
Eurozone leaders are worried that if Greece were to default, and even leave the euro, it would cause a major financial crisis that could spread to much bigger economies such as Italy and Spain.

What went wrong in Greece?

Greek Prime Minister George Papandreou at an EU summit in Brussels on 26 March 2010
In 2010, the EU, IMF and ECB agreed a bailout worth 110bn euros (£92bn; $145bn) for Greece. Prime Minister George Papandreou quit the following year while negotiating its follow-up.

What went wrong in Greece?

Lucas Papademos
Lucas Papademos, who succeeded Mr Papandreou, has negotiated a second bailout of 130bn euros, plus a debt writedown of 107bn euros. The price: increased austerity and eurozone monitoring.

What went wrong in Greece?

Crowds
In May 2012 elections a majority of voters backed parties opposed to austerity, but no group won an overall majority resulting in political deadlock. Fresh elections have been called in June.
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"Everyone in Europe must make an effort to achieve all that is required," she said in comments posted on her website.

The Greek crisis dominated the agenda at the G20 summit in Cannes this week, where Mr Papandreou was summoned for urgent talks on Wednesday.

European Commission President Jose Manuel Barroso acknowledged it was possible that Greece could end up leaving the eurozone, but said it was "in their interests" to stay.

"I think the principle of a country leaving the euro is not a good one. But at the end, it depends on them being able to implement the decisions taken together," he said.

The summit put the next tranche of Greece's existing bailout on hold.

The leaders in Cannes also agreed to boost the resources of the International Monetary Fund (IMF) in an effort to support economic growth.

The EU bailout deal, agreed last month, would give the heavily indebted Greek government 130bn euros (£111bn; $178bn) and it imposes a 50% write-off on private holders of Greek debts, in return for deeply unpopular austerity measures.

Although the Greek public has strongly resisted the austerity measures, a recent opinion poll in a newspaper showed 70% wanted to remain within the eurozone.

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