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Greek PM reportedly ready to step down

/ Source: msnbc.com news services

Greek Prime Minister George Papandreou faces a knife-edge confidence vote on Friday after his plan for a referendum on a bailout -- supposed to save both Greece and the euro zone from disaster -- backfired disastrously.

But even if his socialist government survives the parliamentary vote, Papandreou's days as Greek leader looked numbered after a deal with his cabinet under which, government sources said, he agreed to stand down after negotiating a coalition with the conservative opposition.

Much of Greece and many European leaders reacted with horror after Papandreou abruptly announced on Monday that he would put the 130-billion-euro ($180-billion) rescue plan, agreed at a euro zone summit only last week, to the Greek people.

Papandreou came out fighting, rejecting opposition demands, in public at least, that he make way for a caretaker administration with just two tasks: forcing the bailout through parliament without a referendum and calling of snap elections.

However, analysts said Papandreou may not be around much longer to fight such battles.

"The prime minister's position is very difficult, since he chose not to respond to the opposition's proposal for a transitional coalition government. Therefore I believe that it is unlikely that he will win the vote," said head of ALCO pollsters, Costas Panagopoulos.

Through waves of austerity policies demanded by the nation's international lenders, Papandreou has carried the parliamentary group of his PASOK party with him, despite much grumbling within the ranks.

But a steady trickle of defections has reduced his majority to the point that one or two waverers could inflict a defeat in the confidence vote, expected as late as midnight (6 p.m. EST)

PASOK has 152 deputies in the 300-member parliament. But lawmaker Eva Kaili said that while she would stay in the party, she would refuse to support the government in the confidence vote, meaning Papandreou could count at most on the support of 151 deputies.

Only one more defection would strip the government of its majority and probably trigger early elections.

Meanwhile, Greece's cost of borrowing ballooned, with the interest demanded by markets to buy Greek 10-year bonds exceeding 31 percent — compared to 2 percent for European powerhouse Germany.



Greeks have fought tooth and nail against policies which have brought spending cuts, tax rises and job losses, pushing the nation into three years of recession, and they have staged a series of strikes and protests, some of which turned violent.

This made a "no" vote in any referendum highly likely, even though this would cut off Greece's last international financial lifeline and risked spreading its debt crisis to much bigger euro zone economies, such as Italy and Spain.

But after a tumultuous day in Greek politics, the chances of the referendum being held dwindled to almost nothing on Thursday. Papandreou offered to drop the idea anyway if the conservative opposition backed the bailout in parliament.

Over the day, he talked about negotiating with the conservative New Democracy party, saying the national interest ranked well above his personal ambitions. "I'm not tied to my post. I'm not interested either in being re-elected, I'm only interested in saving the country," he told parliament.

Papandreou also called on his PASOK party to rally behind him in the confidence vote. But his public bravado appeared to mask an acceptance that his term may come to an end soon.

Government sources said Papandreou had struck a deal at a cabinet meeting on Thursday under which he would stand down after he had negotiated a coalition agreement with the conservative opposition -- provided he survives Friday's vote.

Ministers involved in striking the deal with Papandreou, led by Finance Minister Evangelos Venizelos, said he should go for the sake of their PASOK party, said the sources, who had knowledge of Thursday's meeting of the cabinet.

Papandreou was summoned to an emergency European meeting in Cannes, France, on Wednesday night, where the visibly irate French and German leaders said any referendum would in fact be a question of whether Greece retains its cherished membership of the 17-nation euro common currency. They also put on hold the next, vital payout of Greece's existing bailout until after a vote was held.

A Greek Finance Ministry official told the AP that Greece has cash until mid-December. After that, without the €8 billion ($11 billion) disbursement, Greece would most likely be unable to service its debt or pay pensions and salaries.

Venizelos accompanied Papandreou to the Riviera but led a revolt against the referendum idea on his return to Athens before dawn Thursday.

With Greece's euro membership and bailout loan lifeline suddenly in danger, pressure mounted for Papandreou to resign. The conservative opposition and even his own deputies called for the creation of a transition government to pass the new European debt deal.

Venizelos said, as the opposition now indicated it would support the European debt deal, a referendum was no longer necessary.

"The government went to Cannes with the position that if the necessary consensus is formed there will be no need to hold a referendum," he said. "We must highlight the fact that there is a window of a consensus."

He said the new debt deal would be brought to parliament under a procedure that would require a reinforced majority of 180 out of the 300 lawmakers to vote in favor. With the governing Socialists holding 152 seats, that means the debt deal will only pass if the opposition also votes in favor.

But conservative opposition leader Antonis Samaras quickly dispelled any impression of unity, arguing that he had already agreed to back the vital deal, and demanded elections — within the next six weeks if possible.



Papandreou "nearly pulled the universe apart to supposedly persuade me to agree to something that I had already said was unavoidable," he told parliament later Thursday, during a debate on the upcoming confidence vote.

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

Samaras then led his lawmakers in a dramatic walkout of the debate, without indicating whether he would vote in favor of the deal.

The drama in Greece sent immediate ripples throughout Europe. Premier Silvio Berlusconi's government in Italy was teetering as well Thursday 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. The European Central Bank made a surprise decision to cut interest rates by a quarter of a percentage point, to 1.25 percent, in an acknowledgment of the fragility of the continent's finances.

Talk of Greece also dominated the G-20 summit in the French resort of Cannes, where the leaders of the world's economic powerhouses gathered to solve Europe's debt crisis, which threatens to push the world back into recession.

During a summit break, French President Nicolas Sarkozy praised the Greek opposition's backing for the debt-crippled country's new bailout as "courageous and responsible."

Greece's new debt deal would give the country an extra €130 billion ($179 billion) in rescue loans from the rest of the eurozone and the International Monetary Fund — on top of the €110 billion ($152 billion) it was granted a year ago. It would also see banks forgive Athens 50 percent of the money it still owes them. The goal is to reduce Greece's massive debts to the point where the country is able to handle its finances without constant bailouts.

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 opposing Papandreou's policies and his party polling just 20 percent public support.

Underlining that point, 300 people held a peaceful anti-austerity protest in central Athens late Thursday

The political drama continues Friday, when parliament will hold a confidence vote on the government. Papandreou's majority has been reduced to the bare minimum 151 after Socialist lawmaker Eva Kaili said she would not vote in favor.

"Tomorrow's vote is of particular significance, for the confidence vote provides a guarantee of how we will make our new steps ... and how we will talk with the opposition parties," Papandreou said.

The omens are poor: The two other European governments besides Greece that have received bailouts — Portugal and Ireland — have seen their governments fall during the economic turmoil.