EUROPE’S THREAT to cut off rescue aid to Greece plunged its government into chaos as prime minister George Papandreou battled for survival and the opposition pledged to back its EU-IMF bailout if he left power and called an election.
At the end of a long day of drama in Athens, Mr Papandreou was reported last night to have offered to resign and hand power to a caretaker bipartisan government if his divided Pasok socialist party backed him in a confidence motion tonight.
Uncertainty over the fate of Mr Papandreou and his administration overshadowed a G20 summit in Cannes, at which European leaders came under renewed pressure from their global counterparts to settle finally the debt debacle.
Mr Papandreou’s government has been on the verge of collapse since he called an unexpected referendum on the bailout on Monday night.
The catalyst for the ructions yesterday was a blunt ultimatum from German chancellor Angela Merkel and French president Nicolas Sarkozy that Europe would block a crucial €8 billion loan until the referendum was passed.
“I don’t want to give any idea that we’re trying to get involved in Greek domestic politics but if we’re talking about defending the euro zone, the euro and Europe, then that’s our obligation, our duty,” Mr Sarkozy told reporters in Cannes.
The Franco-German intervention, backed by the International Monetary Fund, forced the pace of events in Athens as Mr Papandreou engaged in frantic talks to hold back defections from Pasok while seeking a rapprochement with the country’s main opposition party.
The prime minister reached a tentative agreement with the conservative New Democrats after which it declared support for the bailout and he withdrew the plan for a referendum. Questions were quickly raised about the deal, however, when Mr Papandreou refused to quit yesterday evening and insisted he would go before parliament in a scheduled confidence motion in his government tonight.
New Democracy leader Antonis Samaras saw this as a blatant move to sabotage the deal and his MPs walked out of parliament in protest.
Widely criticised in Europe for his strident opposition to the bailout, Mr Samaras had changed his stance to call for the ratification of the EU-IMF rescue package by a “temporary, transitional government with an exclusive mandate to immediately hold elections”. In spite of Mr Papandreou’s vow to fight on, senior euro zone sources said moves have been set in train to see former European Central Bank vice-president Lucas Papademos take charge of a caretaker government.
This administration would enact a budget for 2012, draw down the next bailout loan and put arrangements in place for an election.
The manoeuvres in Athens, which was in the grip of fevered political speculation all day long, were greeted with some relief in Cannes.
While sources briefed in behind-the-scenes talks with the Greek authorities said the accord was something of a breakthrough, they acknowledged that the affair did not bode well for Europe’s effort to assert control over the crisis.
Mr Sarkozy and Dr Merkel had issued the ultimatum to Mr Papandreou in the course of a bruising pre-summit meeting in which they sharply rebuked him for calling the referendum.
In addition to withholding the loan, which Athens needs to avert bankruptcy within weeks, they insisted that Greek voters be asked whether the country should stay in the euro or leave the currency.
Euro zone leaders held talks early yesterday with Italian prime minister Silvio Berlusconi, urging him to fully execute a drastic new austerity plan.
Mr Sarkozy said more was required from the Italian leader.
