ATHENS, Greece — Greece’s prime minister abandoned his explosive plan to put a European rescue deal to popular vote and opened emergency talks Thursday with his opponents, who reversed themselves and agreed to broad austerity measures in exchange for a European bailout.
Prime Minister George Papandreou ignored widespread calls for his resignation and instead invited the opposition to join negotiations on the bailout, telling an emergency Cabinet meeting that early elections would force Greece into leaving the 17-nation euro currency, with disastrous effects for both Greece and other European economies.
Papandreou sparked a global crisis Monday when he announced he would put the latest European deal to cut Greece’s massive debts — an accord that took months of negotiations — to a referendum. The idea horrified other EU nations and Greece’s creditors, triggering turmoil in financial markets as investors fretted over the prospect of Greece being forced into a disorderly default.
Two officials close to Papandreou said Thursday the referendum idea has now been scrapped, after the debt deal won support from the opposition. Papandreou spoke with conservative opposition leader Antonis Samaras in the afternoon, his office said, before a major address to his Socialist party deputies in parliament.
Speaking to his ministers, Papandreou said his proposal to hold a referendum “has at least brought many people toward a rational view” of Greece’s dire economic situation. Several Greek lawmakers had called for a coalition unity government to approve the bailout package without a referendum, but Papandreou said stepping down would make things worse.
“Elections as a solution, today and at this moment, would mean a much greater danger of bankruptcy and of course exit from the euro,” Papandreou said.
The drama Thursday in Greece sent immediate ripples throughout Europe. Premier Silvio Berlusconi’s government in Italy was teetering as well 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. The European Central Bank made a surprise decision to cut interest rates by a quarter of a percentage point, to 1.25 percent, in an acknowledgment of the fragility of the continent’s finances.
Talk of Greece also dominated the G-20 summit in the French resort of Cannes, where the leaders of the world’s economic powerhouses gathered to solve Europe’s debt crisis, which threatens to push the world back into recession.
Papandreou flew to Cannes on Wednesday, where French President Nicolas Sarkozy and German Chancellor Angela Merkel told him Greece would not get the latest funds from its existing bailout until after any referendum. They also said any referendum should be on whether Greece wants to stay in the eurozone or not.
After returning to Greece with Papandreou, his finance minister, Evangelos Venizelos, broke ranks and declared his opposition to a referendum. “Greece’s position within the euro area is a historic conquest of the country that cannot be put in doubt,” he said.
Venizelos said the country’s attention should instead be focused on quickly getting a crucial (euro) 8 billion ($11 billion) installment of international bailout funds, without which it faces bankruptcy with weeks.
Papandreou said Thursday that he never intended to hold a referendum on Greece’s use of the euro, but was simply seeking broader Greek approval for the bailout plan.
Greece’s new debt deal would give the country an extra (euro) 100 billion ($138 billion) in rescue loans from the rest of the eurozone and the IMF — on top of the (euro) 110 billion ($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 of the program is to reduce Greece’s massive debts to the point where the country is able to handle its finances without constant bailouts.
The political drama is not over. Papandreou has called a confidence vote on his government for Friday night, and his majority was reduced to the bare minimum 151 when Socialist lawmaker Eva Kaili said she would not vote in favor.
The two other European governments besides Greece that have received bailouts — Portugal and Ireland — have seen their governments fall during the economic turmoil.
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Associated Press Derek Gatopoulos and Demetris Nellas in Athens, Colleen Barry in Milan and Geir Moulson in Berlin contributed to this report.
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