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Papandreou Seeks Accord to Secure Aid

Greek Prime Minister George Papandreou reached out to the opposition about setting up a transitional government, indicating an accord would secure aid and remove the need for a referendum on euro membership.

Just hours after saying Greeks need to decide on whether their future is in the euro, Papandreou said the country belongs in the currency bloc. He welcomed support shown by the main opposition New Democracy party for last week’s rescue pact agreed with European Union leaders in Brussels. Finance Minister Evangelos Venizelos said Greece won’t hold a referendum.

“We had a dilemma: either real consensus or referendum,” Papandreou told ministers, according to an e-mailed transcript of his statements. “As I said yesterday, coming out of the meeting, if there were consensus we wouldn’t need a referendum. I said if the opposition comes to the table to agree on the loan, there’s no need for a referendum.”

Papandreou’s decision to call a referendum divided his ruling party and spurred the EU to halt aid, pushing Greece toward a potential default. The European Central Bank unexpectedly cut interest rates today after fallout from Greece pushed up borrowing costs and forced Europe’s rescue fund to cancel a bond issue for the first time.

Major Mistake

“A major mistake by Mr. Papandreou, it was extremely irresponsible and he’s paying a heavy political price for it both here and internationally,” former Defense and Finance Minister Yannos Papantoniou said in an interview with Bloomberg Television today. “The credibility of the current government has collapsed.”

Greek two-year bond yields climbed above 100 percent for the first time after the EU’s block on further aid raised the specter of the first default by a EU nation. Papandreou’s Pasok party diverged over the referendum issue with lawmakers calling for an alliance with the opposition, and other parliamentarians for fresh elections.

Papandreou said he spoke with New Democracy leader Antonis Samaras, who had called for a transitional government to secure international aid.

Elections must be held as soon as possible after the financing is secured, Samaras said in statements televised on state-run NET TV. He said the country must stay in the euro.

Stem Defections

Papandreou, 59, sought to stem defections from his party before a confidence vote on his government tomorrow. Ruling party lawmakers Eva Kaili and Elena Panariti said they wouldn’t support Papandreou in the confidence motion if he insisted on the referendum plans.

“I am not preparing to consent in any way to any doubting of the European course of my country,” said Panariti, an adviser to Papandreou. “I won’t give a vote of confidence to a path of catastrophe for my country.”

In the event of a defeat in tomorrow’s confidence vote, President Karolos Papoulias could try to bring parties together to form a national administration under a new premier or invite opposition parties to form a government. Under Greek law, an election could be held within three weeks.

Record Spreads

Papandreou’s Oct. 31 announcement that the country would hold a referendum triggered the biggest two-day decline in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records.

The yield on Greece’s two-year notes rose to 107.26 percent, while the Stoxx Europe 600 Index gained 2 percent after falling as much as 1.5 percent. The euro pared gains against the dollar after the ECB cut the benchmark interest rate.

Papandreou came under increasing pressure from international leaders to drop his plans for a referendum and adhere to the agreement forged last week in Brussels.

European leaders raised the prospect for the first time of the euro area splintering as they chose to treat Greece’s December referendum as an in-or-out vote on its future in the currency union.

Luxembourg’s Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the Greek proposal was an “irritating element” in Europe’s debate on how to solve the sovereign debt crisis and European leaders “perceived it as disloyal.”

French President Nicolas Sarkozy said Papandreou’s government wouldn’t get a “single cent” of assistance if voters rejected the plan, while German Chancellor Angela Merkel said the referendum would “revolve around nothing less than the question” of whether Greece wanted to stay in the euro or not.

To contact the reporter on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net

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

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