Greek PM drops euro referendum plan

 

Greece's prime minister has abandoned his explosive plan to put a European rescue deal to a referendum.

George Papandreou opened emergency talks with his opponents, who performed a U-turn and agreed to broad austerity measures in exchange for a European bailout.

Mr Papandreou ignored widespread calls for his resignation and instead invited the opposition to join negotiations on the bailout.

He told an emergency Cabinet meeting that early elections would force Greece into leaving the euro, with disastrous effects for both Greece and other European economies.

Mr Papandreou sparked a global crisis on 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 Mr Papandreou said today the referendum idea has now been scrapped, after the debt deal won support from the opposition.

Mr Papandreou spoke to 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, Mr 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 MPs had called for a coalition unity government to approve the bailout package without a referendum, but Mr 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," he said.

The drama 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%, in an acknowledgement of the fragility of the continent's finances.

Talk of Greece also dominated the G20 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.

Mr 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 him, 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.

Me Venizelos said the country's attention should instead be focused on quickly getting a crucial eight billion euro (£6.9 billion) instalment of international bailout funds, without which it faces bankruptcy within weeks.

Mr Papandreou said today 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 100 billion euro (£86 billion) in rescue loans from the rest of the eurozone and the IMF - on top of the 110 billion euro (£95 billion) it was granted a year ago.

It would also see banks write off 50% of the money Athens still owes them. The goal of the programme 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.

Mr Papandreou has called a confidence vote on his government for Friday night, and his majority was reduced to the bare minimum when Socialist MP Eva Kaili said she would not vote in favour.

The two other European governments besides Greece that have received bailouts - Portugal and Ireland - have seen their governments fall during the economic turmoil.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Account Manager

£20000 - £35000 per annum: Recruitment Genius: This full service social media ...

Recruitment Genius: Data Analyst - Online Marketing

£24000 - £35000 per annum: Recruitment Genius: We are 'Changemakers in retail'...

Austen Lloyd: Senior Residential Conveyancer

Very Competitive: Austen Lloyd: Senior Conveyancer - South West We are see...

Austen Lloyd: Residential / Commercial Property Solicitor

Excellent Salary: Austen Lloyd: DORSET MARKET TOWN - SENIOR PROPERTY SOLICITOR...

Day In a Page

Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect
Surrounded by high-rise flats is a little house filled with Lebanon’s history - clocks, rifles, frogmen’s uniforms and colonial helmets

Clocks, rifles, swords, frogmen’s uniforms

Surrounded by high-rise flats is a little house filled with Lebanon’s history
Return to Gaza: Four months on, the wounds left by Israel's bombardment have not yet healed

Four months after the bombardment, Gaza’s wounds are yet to heal

Kim Sengupta is reunited with a man whose plight mirrors the suffering of the Palestinian people
Gastric surgery: Is it really the answer to the UK's obesity epidemic?

Is gastric surgery really the answer to the UK's obesity epidemic?

Critics argue that it’s crazy to operate on healthy people just to stop them eating
Homeless Veterans appeal: Christmas charity auction Part 2 - now LIVE

Homeless Veterans appeal: Christmas charity auction

Bid on original art, or trips of a lifetime to Africa or the 'Corrie' set, and help Homeless Veterans
Pantomime rings the changes to welcome autistic theatre-goers

Autism-friendly theatre

Pantomime leads the pack in quest to welcome all
The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there