Papandreou to Meet Papoulias as Criticism Grows on Unity Government Delays

By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Nov 9, 2011 9:38 PM GMT+0700

Prime Minister George Papandreou will meet President Karolos Papoulias in Athens today as criticism grows over delays in naming a new prime minister to lead an interim Greek government to avert the economy’s collapse.

Papandreou will have talks with Papoulias at the presidential palace at 5 p.m. Greek time, according to an e- mailed statement from the presidency. There, he will tender his resignation and announce the formation of a new national unity government, state-run NET TV said, without saying how it got the information.

Negotiations on a unity government between Papandreou and Antonis Samaras, leader of the opposition New Democracy party, have dragged on for nearly three days as the two sides disagreed on a prime minister and the opposition balked at European Union demands for written commitments. The new government must implement budget measures and decisions related to an Oct. 26 bailout package, including a debt swap, before holding elections.

It is “imperative that a new government is formed immediately,” Greek Central Bank Governor George Provopoulos, a member of the European Central Bank’s Governing Council, said in an e-mailed statement from the Athens-based bank. “Political uncertainty has added to the stress facing the economy and the banking system.”

Banker, Judge

Former central banker Lucas Papademos was poised to lead the new government as of late yesterday, according to reports from NET TV and To Vima newspaper. To Vima said today, without citing anyone, that Vassilios Skouris, president of the European Court of Justice, may be given the post of prime minister in place of Papademos.

“The bottom line is that the clock is ticking for Greece as it will soon run out of cash without European help,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “Greek leaders seem still not to have appreciated the urgency of the situation.”

Papandreou promised to step down and raced to put together a new government to bridge differences with EU leaders and officials after his proposal of a referendum on the second Greek financing package of 130 billion euros ($177 billion) roiled markets.

At Stake

Immediately at stake is the fate of an 8 billion-euro loan installment under the first aid package, a 110 billion-euro EU- led bailout agreed in May 2010. The tranche must be paid before the middle of December to prevent a collapse of the country’s financial system.

“If no prime minister has been appointed by 5 p.m., the responsibility will be in the hands of those who brought us here whether by design or by accident,” opposition lawmaker Dora Bakoyannis, a former foreign minister, said in comments shown on NET TV. “This is shameful for the political system of the country.”

“Greek politicians don’t seem to be willing to give the new premier enough power to choose his Cabinet or enough time in office to solve the problems,” Spyros Economides, senior lecturer at the London School of Economics, said in a telephone interview.

The uncertainty hurt global markets as Italian Prime Minister Silvio Berlusconi agreed to step down and LCH Clearnet SA raised the deposit it demands for trading the nation’s securities.

Euro, Stocks Fall

The euro fell 1.5 percent to $1.3627, while the MSCI Asia Pacific Index added 0.8 percent. Standard & Poor’s 500 futures expiring in December fell 2.3 percent to 1244.20.

The yield on the 10-year Greek bond dropped 2 basis points to 27.73 percent, after seven straight days of increases.

European stocks fell with the benchmark Stoxx Europe 600 Index dropping 2.1 percent. Greece’s benchmark general index fell 2.2 percent to 762.34 at 2:48 p.m. in Athens, after two days of advances.

European finance ministers expect a written commitment from any government after Papandreou’s proposal for a referendum on the Greek bailout package created a “breach of confidence” with the EU, the bloc’s Economic and Monetary Affairs Commissioner Olli Rehn said yesterday. The proposal was later withdrawn.

“Now this confidence needs to be mended,” he said.

The letter will need to be signed by Papandreou, Samaras, the new prime minister and finance minister as well as the head of the Greek central bank.

Lost Credibility

The fact that Papandreou’s government lost all credibility in Europe doesn’t mean the country’s dignity can be insulted, New Democracy party spokesman Yannis Michelakis said in an e- mailed statement, referring to the EU demand for a written pledge.

The stand-off extended the uncertainty over Greece’s banks and economy. National Bank of Greece SA, the country’s largest, lost 2.8 percent to 2.11 euros at 3 p.m. in Athens. EFG Eurobank Ergasias SA, the second-biggest, fell 6.6 percent to 77 cents.

Greek bank deposits in September fell 2.9 percent from the previous month to 183.2 billion euros, according to Bank of Greece data released yesterday. The 5.4 billion-euro drop is the biggest one-month decline since data started being recorded after the country’s entrance to the euro region in January 2001.

Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed to at the Oct. 26 summit. Its 4 percent notes due in August 2013 now trade at about 35 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit-default swaps.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net; Marcus Bensasson in Athens at mbensasson@bloomberg.net.

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net