Unity government for Greece

GREEK Prime Minister George Papandreou agreed to step down as premier to allow the creation of a national unity government that will secure international financing for the country and avert a default.

Papandreou met with Antonis Samaras, the leader of the main opposition party, and “agreed to form a new government with the aim of leading the country to elections immediately after the implementation of European Council decisions on October 26,” according to a statement from the office of President Karolos Papoulias. Papandreou has already said he won’t lead this new government, the statement said.

Both sides will meet again today to decide who will be the head of the new government with a separate meeting to discuss the timeframe and the new government’s mandate, the statement said. Papoulias will host a meeting of all political party leaders today as well.

Trying to preserve international aid before the nation runs out of money next month, Papandreou raced over the past 48 hours to clinch an agreement on a new government before markets open this morning, healing divisions to secure an aid agreement and avert the first default by a European Union nation.

Samaras, who had previously demanded early elections and balked at joining forces with Papandreou’s socialist Pasok party, said he was “determined to help” reach an agreement as long as the premier stepped down first.

Finance Minister Evangelos Venizelos had said he wanted a unity government agreed on before eurozone finance ministers meet in Brussels. .

Government spokesman Elias Mosialos said yesterday: “It would be useful today, tomorrow at the latest, to have agreed on the name of the new prime minister as well.”

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 on Saturday after pledging to disaffected members of his ruling Pasok party that he would not stay on.

The premier’s offer to step down capped a tumultuous week that started with him securing a second bailout from the EU, then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote.

Greece is not the only EU government 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% level that forced Greece, Ireland and Portugal to seek bailouts. Berlusconi reiterated yesterday that he won’t resign.

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 October 7, amid the Greek turmoil and after a G20 summit in Cannes failed on Friday to agree on increasing resources for the IMF.

The main goal of a government of wider cooperation is securing approval for the October 26 deal with international lenders, Papandreou said yesterday. Last month’s accord “is a prerequisite for our remaining in the euro,” he said.

Mosialos remained hopeful last night that the outlines of a deal could be achieved and a full cabinet settled on at a later stage.

Opposition LAOS party leader George Karatzaferis, who controls 16 seats in parliament and who supported Papandreou’s plan, was critical of Samaras’s approach.

Sassan Ghahramani, head of SGH Macro Advisers, said: “Papandreou, by bringing things to a head, has basically, without expecting this to happen, sacrificed his own political career.”

Greek two-year bond yields climbed above 100% 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 Greece may have to exit the euro following Papandreou’s referendum call.

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.

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.