Greek Prime Minister George Papandreou’s talks on forming an interim government to avert the economy’s collapse dragged into a third day as a near-agreement with the biggest opposition party stalled on European Union demands for written commitments.
Former central banker Lucas Papademos appeared poised to be named to lead the new government as of late yesterday, according to reports from state-run NET TV and To Vima newspaper. While Papandreou told his ministers to prepare to submit their resignations because a government would be named “soon”, no official announcement was made.
Antonis Samaras, leader of the opposition New Democracy party, reacted angrily to a demand from EU officials that he sign up to budget measures required to receive a second Greek financing package of 130 billion euros ($179 billion) decided on Oct. 26.
“The bottom line is that the clock is ticking for Greece as it will soon run out of cash without European help,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “Greek leaders seem still not to have appreciated the urgency of the situation.”
Papandreou promised to step down and raced to put together a new government to bridge differences with EU leaders and officials after he proposed a referendum on the Oct. 26 loan package. The new government’s mission will be to implement budget measures and decisions related to the package, including a debt swap, before holding elections.
The makeup of the new Greek interim government is to be announced today, the Associated Press reported, citing a government official whom it did not name.
Immediately at stake is the fate of an 8 billion-euro loan installment under a 110 billion-euro May 2010 EU-led bailout which must be paid before the middle of December to prevent a collapse of the country’s financial system.
Opposition LAOS party leader George Karatzaferis late yesterday offered to mediate to break the deadlock with Papandreou and Samaras after they failed to announce a new government amid reports of squabbling over how to staff posts.
“Europe is mocking us,” Karatzaferis said in statements broadcast live on state-run NET TV. “Greeks feel insecure. These types of situations need clarity. If they are willing let’s try and find a solution.”
The euro rose 0.3 percent to $1.3822 at 9:22 p.m. in Athens, while the MSCI Asia Pacific Index dipped 0.6 percent. Standard & Poor’s 500 Index gained 1 percent as of 3:19 yesterday, after closing up 0.6 percent the day before.
The yield on the 10-year Greek bond climbed 10 basis points to 27.76 percent, rising for the seventh straight day.
European stocks rose yesterday, with the benchmark Stoxx Europe 600 Index rebounding from a two-day decline. Greece’s benchmark general index closed 2.4 percent higher at 779.63, the second straight advance since the country’s political leaders agreed to cooperate.
European finance ministers meeting in Brussels pledged to roll out a bulked-up rescue fund next month. The group expects a written commitment from any national unity government after Papandreou’s proposal to hold a referendum on the measures, since withdrawn, created a “breach of confidence” with the EU, the bloc’s Economic and Monetary Affairs Commissioner Olli Rehn said yesterday.
“Now this confidence needs to be mended,” he said.
Letter to EU
The letter to the EU will need to be signed by Papandreou, Samaras, the new prime minister and finance minister as well as the head of the Greek central bank, George Provopoulos, said a Greek government official, who declined to be named.
“There is an issue of national dignity,” Samaras said in an e-mailed statement. “I have repeatedly explained that, in order to protect the Greek economy and the euro, implementing the Oct. 26 decisions has become unavoidable. I don’t allow anyone to doubt my statements on this.”
New Democracy party spokesman Yannis Michelakis said the fact that Papandreou’s government had lost all credibility in Europe didn’t mean that the country’s dignity can be insulted, according to an e-mailed statement.
The stand-off extends the uncertainty over Greece’s banks and economy.
Greek bank deposits in September fell 2.9 percent from the previous month to 183.2 billion euros, according to Bank of Greece data released yesterday. The 5.4 billion-euro drop is the biggest one-month decline since data started being recorded after the country’s entrance to the euro region in January 2001.
Greece plans to pay lenders 50 cents for each euro the government borrowed under the terms of the bailout plan agreed to at the Oct. 26 summit of European leaders and bankers. Its 4 percent notes due in August 2013 now trade at about 35 cents. Fitch Ratings says the agreement with creditors would amount to a “default event” if implemented, while the International Swaps and Derivatives Association says it won’t trigger credit- default swaps.
“We find ourselves in a very difficult situation and what we have to be thinking about is how to avoid default,” former foreign minister Dora Bakoyannis, who has the backing of another three lawmakers in parliament, said on Mega TV.
Greece has been in turmoil since shortly after Papandreou secured the second bailout from the EU. He roiled markets by unilaterally deciding to put the terms of the rescue to the Greek people in a vote, a plan he dropped after the EU froze all payments. Bowing to pressure from his party and the opposition, Papandreou pledged to stand aside for a government with wider support to win resumption of international aid.
Yesterday, Italian Prime Minister Silvio Berlusconi succumbed to mounting pressure to step down as 10-year borrowing costs for the region’s third-biggest economy approach the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. He will resign as soon as Parliament approves austerity measures in a vote next week.
“There’s still denial about the sovereign crisis amongst Greek and Italian politicians,” said Riccardo Barbieri, chief European economist at Mizuho International Plc in London. “They still believe there is time to play politics. If the political parties want to avoid an even more disruptive crisis, they must cooperate.”
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