Greece in turmoil over debt plan, markets in limbo

DEMETRIS NELLAS

ELENA BECATOROS

Asso­ci­ated Press

ATHENS, Greece — Greece was in tur­moil and the world econ­omy in limbo Thurs­day as a high-stakes game of polit­i­cal brinkman­ship in Athens led Prime Min­is­ter George Papan­dreou to aban­don his explo­sive plan to put a Euro­pean res­cue deal to a referendum.

The dra­matic devel­op­ments over­shad­owed the G20 sum­mit of world lead­ers in the French resort of Cannes, where Pres­i­dent Barack Obama implored Euro­pean lead­ers to swiftly work out a euro­zone plan to deal with the continent’s cri­sis, which threat­ens to push the world back into recession.

Papan­dreou sparked a global cri­sis this week when he announced plans to put the lat­est Euro­pean deal to cut Greece’s mas­sive debt — a hard-fought accord that took months of nego­ti­a­tions — to a pop­u­lar vote. The idea hor­ri­fied other EU nations, Greece’s cred­i­tors and finan­cial mar­kets as investors wor­ried over the prospect that Greece could be forced into a dis­or­derly default.

Faced with mount­ing oppo­si­tion at home and abroad, Papan­dreou with­drew the ref­er­en­dum call after the main oppo­si­tion con­ser­v­a­tives indi­cated they backed the debt deal. With them poten­tially on board, his finance min­is­ter argued, there was no longer a need to put the issue to the Greek people.

Stocks rose sharply in the United States and Europe on news the ref­er­en­dum plan had been scrapped, as well as a sur­prise move by the Euro­pean Cen­tral Bank to cut inter­est rates. The Dow Jones indus­trial aver­age jumped 208 points, or 1.8 per­cent, to close above 12,000 for only the third time since early August.

But Papandreou’s gov­ern­ment was still in dan­ger. The prime min­is­ter faces a cru­cial con­fi­dence vote in Par­lia­ment at mid­night Fri­day, after two days of acri­mony that saw many of his own law­mak­ers and min­is­ters rebel. Many asked for his res­ig­na­tion, furi­ous that his insis­tence on a ref­er­en­dum had endan­gered the debt deal and led Euro­pean lead­ers to ques­tion Greece’s trea­sured par­tic­i­pa­tion in the euro, the com­mon cur­rency used by 17 EU nations.

The gov­ern­ing Social­ists have a slim two-seat major­ity in the 300-member leg­is­la­ture, and at least one law­maker has pub­licly threat­ened to vote against the Papan­dreou government.

In an address to Par­lia­ment, Papan­dreou stressed his only inter­est was Greece’s well-being, and hinted he was will­ing to even­tu­ally step down.

“I don’t care about being re-elected. I am inter­ested in sav­ing the coun­try,” he said, adding that he was open to the mount­ing calls for the cre­ation of a tran­si­tional gov­ern­ment that would secure the debt deal, and make sure Greece receives the next, vital install­ment of its exist­ing bailout funds. After that, he said, he would be open to hold­ing elections.

“Let every­thing be dis­cussed — the makeup of the gov­ern­ment and any­thing else. … I am not glued to my seat,” Papan­dreou said.

“My posi­tion is crys­tal clear: Let talks start imme­di­ately to cre­ate a for­ma­tion that is broadly accepted, effi­cient and able to deal with the national inter­est in this dif­fi­cult time for the country.”

Once Greece is on an even course, he said, “then, of course, we can head to an elec­tion process. But a gov­ern­ment res­ig­na­tion would have left the coun­try in the lurch.”

An angry Anto­nis Sama­ras, the head of the main oppo­si­tion con­ser­v­a­tives, insisted Papan­dreou had to go and dis­pelled any impres­sion of unity. He argued he had already agreed to back the vital new deal, and demanded quick elec­tions — within the next six weeks if possible.

“Mr. Papan­dreou pre­tends that he didn’t under­stand what I told him,” he said. “I called on him to resign.”

Papan­dreou “nearly pulled the uni­verse apart to sup­pos­edly per­suade me to agree to some­thing that I had already said was unavoidable.”

He then led his law­mak­ers in walk­ing out of the par­lia­men­tary debate on the con­fi­dence vote — although a party offi­cial told The Asso­ci­ated Press they would attend the vote itself on Friday.

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

Papandreou’s sur­prise ref­er­en­dum announce­ment so star­tled world lead­ers that French Pres­i­dent Nico­las Sarkozy and Ger­man Chan­cel­lor Angela Merkel, two archi­tects of the debt deal, sum­moned Papan­dreou to Cannes for emer­gency talks Wednesday.

There, they made clear that if any ref­er­en­dum were held, it would deter­mine whether Greece stayed in the euro­zone, and said Athens wouldn’t get its $11 bil­lion (euro8 bil­lion) install­ment of last year’s $152 bil­lion (euro110 bil­lion) bailout until the dust had settled.

On Thurs­day, Obama declared his sol­i­dar­ity with Sarkozy and Merkel, telling G20 lead­ers that resolv­ing the finan­cial cri­sis was “the most impor­tant aspect of our task over the next two days.”

But with parts of the res­cue unde­fined, he added: “We’re going to have to flesh out more of the details about how the plan will be fully and deci­sively implemented.”

The drama in Greece sent imme­di­ate rip­ples through­out Europe. Pre­mier Sil­vio Berlusconi’s gov­ern­ment in Italy was tee­ter­ing 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.

“It was a sur­real farce today … wor­thy of a Monty Python film,” said Alexis Tsipras, head of a small left-wing party.

Greece’s new debt deal would give the coun­try an extra $179 bil­lion (euro130 bil­lion) in res­cue loans from the rest of the euro­zone and the Inter­na­tional Mon­e­tary Fund — on top of the $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 oppose Papandreou’s poli­cies and just 20 per­cent sup­port his party.

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

The past does not bode well for Papan­dreou: The two other Euro­pean gov­ern­ments besides Greece that have received bailouts — Por­tu­gal and Ire­land — have seen their gov­ern­ments fall dur­ing the eco­nomic turmoil.

Posted by AP News on Nov 3 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.