Greek Prime Minister George Papandreou bowed to cabinet rebels and agreed to step down and make way for a negotiated coalition government if his Socialists back him in a confidence vote on Friday, government sources told Reuters.
Papandreou, son and grandson of left-wing prime ministers, hinted he was ready to quit for the sake of national unity, telling parliament he was not wedded to his job.
Papandreou said his call this week for a referendum, which sparked panic on global financial markets and infuriated European partners, “was never a purpose in itself”, and he would be happy if the vote were not held.
In an address to his party’s central committee on Thursday evening, Mr. Papandreou said there was no need for a referendum now that the opposition New Democracy Party had said for the first time that it would back the agreement, reached last week, to write down Greek debt in exchange for austerity measures and a commitment to the euro as the nation’s currency.
“The question was never about the referendum but about whether or not we are prepared to approve the decisions on Oct. 26,” he said, referring to the European Union’s debt deal, which wrote down some of Greece’s privately held debt by 50 percent, cutting the nation’s private and public-sector debt burden by about 30 percent over all. “What is at stake is our position in the E.U.”
At a bruising meeting in Cannes on Wednesday night, French President Nicolas Sarkozy and German Chancellor Angela Merkel warned him that Athens would not receive a cent more in aid until it met its commitments to the euro zone.
He made those comments after the New Democracy leader, Antonis Samaras, accused the prime minister of “deception.” Mr. Samaras was angry that Mr. Papandreou appeared to be trying to hold on to his post after securing the opposition’s cooperation.
The opposition leader Antonis Samaras called for a transitional government to lead Greece to early elections within weeks and said parliament should first ratify last week’s 130 billion euro ($178 billion) bailout deal.
Mr. Samaras has made it clear that he will not negotiate a unity government with Mr. Papandreou as prime minister, portraying his actions throughout the day as underhanded tactics to cling to power.
“He’s lying, he’s blackmailing, maneuvering inside Greece and beyond, all in order to hold on to his position,” Mr. Samaras said in an address to lawmakers on Thursday evening. He said he had asked the prime minister to resign.
Finance Minister Evangelos Venizelos led the revolt against Papandreou, saying Greece’s euro membership was a historic achievement and “cannot depend on a referendum”.
Dissident PASOK lawmakers called for a temporary national unity government, which some suggested could be led by former ECB vice-president Lucas Papademos.
At the same time the European Central Bank provided a surprise boost by cutting interest rates by 25 points to 1.25 percent and saying its policy of buying euro zone government bonds would continue for now with limited scope to support its monetary policy.
Despite the turmoil in Athens and uncertainty over the euro zone, European stock markets and the euro rallied in volatile trading as the likelihood grew that Greece would not hold the highly risky referendum.
Greece was due to get a vital 8 billion euro installment this month and says it will run out of money in mid-December if it does not get the loan.
The leaders of China, Russia and the United States pressed the Europeans to move more quickly to contain the debt crisis, with Washington urging Germany to relent and let the ECB play a greater role in financial firefighting, G20 sources said.
“Europe should aid itself. The European Union has everything for that today — the political authority, the financial resources and the backing of many countries,” Russian President Dmitry Medvedev said.
The G20 is considering an IMF proposal to create a new short-term line of credit to help countries that are facing economic shocks beyond their control, a G20 official familiar with the talks said. [via Reuters and The New York Times]