By Marcus Bensasson, Maria Petrakis and Natalie Weeks - Nov 6, 2011 7:41 PM GMT+0700
Greek Prime Minister George Papandreou, trying to preserve international aid before the nation runs out of money next month, raced to form a unity government after the opposition’s leader demanded he step down before considering his offer.
“As long as Mr. Papandreou doesn’t resign he is blocking what is foreseen by the constitution,” Antonis Samaras, leader of New Democracy, the biggest opposition party, said in comments televised live on state-run NET TV. “I am determined to help as long as he resigns and everything takes its course.”
Samaras spoke after meeting with Greek President Karolos Papoulias in Athens today. Samaras has so far balked at joining forces with Papandreou’s socialist party even if the premier steps aside and yesterday repeated a demand for elections.
Finance Minister Evangelos Venizelos has said he wants a unity government agreed on before euro-area finance ministers meet in Brussels tomorrow, and government spokesman Elias Mosialos said a deal must come by this evening. “It would be useful today, tomorrow at the latest, to have agreed on the name of the new prime minister as well,” Mosialos said in remarks broadcast on state-run NET TV today.
Papandreou met with Papoulias yesterday as pressure mounted on the 59-year-old to step down after he was forced to cancel a referendum that may have led to Greece being ejected from the euro. The premier won a confidence motion early on Nov. 5 after pledging to disaffected members of his ruling Pasok party that he would not stay on.
Elections Now
“Mr. Papandreou isn’t seeking a national salvation government; he’s trying to bind everyone to his personal choices, which lead to dead ends,” Samaras said yesterday in a televised address. “No program can achieve anything without the approval and support of the people which is why we insist on elections now.”
The premier’s offer capped a tumultuous week that started with him securing a second bailout from the European Union, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote. Papandreou, who will lead a Cabinet meeting at 4 p.m. in Athens, must heal political divisions to secure an agreement on the aid and avert the first default by an EU nation.
More than one EU government is teetering on the brink. Italian Prime Minister Silvio Berlusconi also faces mounting pressure to step down as 10-year borrowing costs for the region’s third-biggest economy approach the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. The premier reiterated today that he won’t resign.
Deal Sought Today
European stocks declined for the first week in six and the euro fell the most in two months versus the dollar to $1.3792, its first weekly loss since the five days ended Oct. 7, amid the Greek turmoil and after a Group of 20 summit in Cannes, France, failed on Nov. 4 to agree on increasing resources for the IMF.
The main goal of a government of wider cooperation is securing approval for the Oct. 26 agreement with international lenders, Papandreou told reporters in Athens yesterday. Last month’s accord “is a prerequisite for our remaining in the euro,” he said.
Mosialos said he believed the outlines of an agreement could be achieved today and that a full Cabinet could be settled on at a later stage.
Opposition LAOS party leader George Karatzaferis, who controls 16 seats in Parliament and who supports Papandreou’s plan, was critical of Samaras’s approach.
“Papandreou, by bringing things to a head, has basically, without expecting this to happen, sacrificed his own political career,” Sassan Ghahramani, chief executive officer of SGH Macro Advisors, said on Bloomberg Television’s “Street Smart.”
Bond Yields
Greek two-year bond yields climbed above 100 percent for the first time, German 10-year bonds posted their biggest weekly advance on record and Italian borrowing costs surged to euro-era records after European leaders said that Greece may have to exit the euro following Papandreou’s referendum decision.
Papandreou won the confidence vote in the 300-member parliament by 153 votes to 145. The government will need the backing of 180 lawmakers to secure approval for Greece’s second aid package, negotiated in Brussels last month. Disbursement of funds was halted after Papandreou’s call for a referendum was opposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.
“With a cooperation government that includes wider political forces, it is logical that the loan agreement will be passed in parliament,” Mosialos said. If parties decide today on a “serious” cooperation government, elections don’t need to be held in the next two or three “critical months,” he said.
Losing Autonomy
Finance Minister Evangelos Venizelos told lawmakers he wants to head to tomorrow’s Brussels meeting with a government deal in hand. “Society must at last be able to breathe, and on Monday the country must be represented in a credible and reliable way” at the euro-group talks, he said.
Most Greeks would prefer to see a national unity government rather than have the country opt for elections, an opinion poll in Proto Thema newspaper showed.
Fifty-two percent of the 1,000 people surveyed by Alco for the Athens-based newspaper said they preferred a unity government compared with 36 percent who said the country should hold elections. The poll was conducted Nov. 2 to Nov. 4 and the margin of error wasn’t provided.
“In the eyes of Angela Merkel and Nicolas Sarkozy, Papandreou doesn’t have much credibility left,” Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics, said in a Bloomberg TV interview. “Greece needs to have a new face to the rest of the world.”
Papademos Touted
Lucas Papademos, the former vice-president of the European Central Bank and a former governor of the Greek central bank, has been mentioned in the Greek media as a possible candidate for the post of prime minister in a unity government.
An adviser to Papandreou, Papademos was the top choice to lead such a government, according to a Kapa Research poll of 1,009 people surveyed for To Vima newspaper last week. Other names cited by the media include Venizelos and former Economy Minister Stefanos Manos.
Papandreou, a graduate of the London School of Economics and former foreign minister, had survived a confidence vote in June called to rally support for austerity measures demanded by international lenders in return for a continuation of a 2010 bailout, the first for an EU nation. The EU and the IMF agreed to provide 110 billion euros ($152 billion) in May last year in return for cuts in government spending and public sector jobs.
Debt Writedown
His referendum plan triggered a suspension in assistance by EU leaders less than a week after they’d approved a second rescue that pledged a further 130 billion euros and wrote down the value of Greek debt by 50 percent.
“The IMF will almost certainly release the sixth tranche of its bailout and we can now expect Greece to avoid involuntary default before Christmas,” Dominic Rossi, global chief investment officer for equities at Fidelity International Ltd. said in an e-mail. “However, in the long run, fundamental problems persist and serious questions still remain on whether Greece will be able to deliver on its commitments.”
The surprise referendum announcement triggered the biggest two-day slide in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records. France now pays 123 basis points more than Germany to borrow for 10 years.
Political Price
St. Paul, Minnesota-born Papandreou, whose father formed the party at the end of Greece’s military rule, had said he was prepared to lose his job if it meant pushing through austerity measures needed to fix Greece’s finances. The nation’s debt is expected to balloon to 162 percent of gross domestic product this year.
“I would be very surprised if Greece doesn’t default in the next few weeks,” said Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London. “I cannot see how the Europeans will pay the next tranche knowing that the Greeks will try and renegotiate the rest of the original Oct. 26 package once this payment has been made.”
To contact the reporters on this story: Marcus Bensasson in Athens at mbensasson@bloomberg.net; Maria Petrakis in Athens at mpetrakis@bloomberg.net
To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net
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