Greek government teeters over bailout referendum

[November 03, 2011]  ATHENS, Greece (AP) -- Greece's embattled Socialist government was on the point of imploding Thursday as a revolt against Prime Minister George Papandreou's planned referendum on the country's hard-won international bailout package gathered pace.

Several ministers and governing party lawmakers called for the creation of a cross-party national unity government to safeguard the new European deal, which is barely a week old, and ensure the country receives vital funds from its existing bailout to prevent imminent bankruptcy.

Speculation that the referendum pledge may be abandoned alongside a caretaker government has helped calm frayed nerves in the markets. Athens main stock market outperformed its peers, rising by 2 percent in midday trading.

Though the leaders of the world's economic powerhouses were gathered in the French resort of Cannes for the Group of 20 meeting, most attention in the financial markets was focused on Athens and the mounting political crisis, which erupted earlier Thursday when Finance Minister Evangelos Venizelos broke ranks with Papandreou on the referendum proposal.

Papandreou's referendum proposal horrified Greece's international partners and creditors, triggering turmoil in financial markets as investors fretted over the prospect of a disorderly debt default and the country's exit from the eurozone.

In Cannes, the leaders of France and Germany told Papandreou any referendum should be on whether Greece wants to stay in the eurozone or not, adding that Athens would not get critical bailout funds until after the vote.

An initial date of Dec. 4 has been suggested for the vote. But Greece has said that without the next euro8 billion installment of its existing bailout fund, the country runs out of funds in mid-November.

Venizelos said the country's attention should be focused on getting a crucial installment of bailout funds quickly, which has been delayed because of Papandreou's decision to put the hard-fought European deal, reached just a week ago, to a referendum.

"Greece's position within the euro area is a historic conquest of the country that cannot be put in doubt," and "cannot depend on a referendum," he said in a statement issued in the early hours of Thursday on his return from Cannes. Venizelos accompanied Papandreou, who had been summoned to an emergency meeting with European leaders on the Greek crisis ahead of the G-20 summit.

Although he had defended Papandreou's decision to hold a referendum in a speech delivered immediately after the premier's announcement, an official close to the minister has said Venizelos had not been told in advance that Papandreou was to announce a public vote.

Several ministers and lawmakers called for an emergency meeting of the governing Socialists in parliament, where Papandreou was convening a cabinet session.

His shock referendum decision Monday angered European leaders and many of his own party lawmakers.

"The only realistic proposal so that the country doesn't collapse" is to create a national unity government and later hold early elections, said party stalwart Vasso Papandreou, who is not related to the prime minister. "Everyone must rise to the occasion."

Alongside his referendum pledge on Monday, Papandreou faces a confidence vote on Friday. With open rebellion among his ranks, it was unclear whether it could survive that long.

Earlier Thursday, Socialist lawmaker Eva Kaili said she would not support the government in the confidence vote. Without her support, the Socialists hold a single seat majority in the 300-member parliament.

Greek EU commissioner Maria Damanaki urged the country's party leaders to find a quick solution "to secure the country's continued membership of the eurozone and the implementation" of last week's bailout agreement.

"At this ultimate hour, as a Greek and a commissioner, my duty is to appeal to all political forces to redefine their positions," she said. "They must find a concerted constitutional path to secure the country's continued membership of the eurozone and the implementation of October's agreements.

"Everything else is secondary. Above all, we must safeguard what we have gained over decades within Europe."

Socialist deputy Dimitris Kremastinos said the prime minister's credibility was at stake.

"The prime minister must summon a meeting of party leaders to issue a declaration that no referendum will be held on the euro," he said, and added his voice to calls for the creation of a national unity government.

Greece's new debt deal would give Greece an extra euro100 billion ($138 billion) in rescue loans from the rest of the eurozone and the IMF -- on top of the euro110 billion it was granted a year ago -- and would see banks forgive Athens 50 percent of the money it still owes them.

Other ministers and governing Socialist party deputies were also distancing themselves from Papandreou's referendum idea.

Development Minister Michalis Chrisohoidis called for unity and said the priority was for parliament to ratify the new debt deal.

"There can be no... return to the drachma and the past," Chrisohoidis said in a statement. "We must all assume our responsibilities."

Speaking in Cannes, Papandreou said he was forced to call the referendum after it became clear there was no "broad support" from opposition parties for the bailout deal reached with the rest of the eurozone and big banks just a week ago.

Turning the referendum into a popular vote on whether Greece wants to remain in the eurozone is a risky bet that could lead to turmoil throughout the bloc.

"We cannot permanently ride a rollercoaster on Greece; we have to know where things are going, and the Greeks have to tell us where they would like things to go," Jean-Claude Juncker, the Luxembourg prime minister who chairs eurozone finance ministers' meetings, told Germany's ZDF television Thursday.

"I am very decidedly of the opinion that everything must be done so that one euro country does not leave the 17 -- but if that were the wish of the Greeks, and I would find that wrong, we cannot force the Greeks," he added.

If Greece leaves, Juncker said Europe has to make plans so other eurozone countries don't suffer.

"We are absolutely prepared for the situation that I have described and do not want to see come about," Juncker said. "This is not just about Greece, it is also about possible dangers of contagion for others, and we will do everything ... to arrange the firewalls against the danger of contagion in such a way that the eurozone as a whole does not skid."

[Associated Press; By ELENA BECATOROS and NICHOLAS PAPHITIS]

Associated Press writers Derek Gatopoulos in Athens and Geir Moulson in Berlin contributed.

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