Prime Minister George Papandreou was seeking to form a government of national unity that will enable Greece to convince international leaders to resume aid before the nation runs out of funds next month.
Papandreou was meeting with President Karolos Papoulias on Saturday as pressure mounts on the 59-year-old to step aside after he was forced to cancel a referendum that may have led to Greece being rejected from the euro. The premier won a confidence motion early this morning after pledging to disaffected members of his ruling Pasok party that he would not stay on.
"We have to agree on common goals for a timetable and program even for the head of this government," Papandreou told lawmakers in parliament. "The scale of the task facing Greece exceeds the abilities of any one party."
Papandreou's offer capped a tumultuous week that started with him securing a second bailout from the European Union then roiling markets by unilaterally deciding to put the terms of that rescue to the Greek people in a vote. The premier must heal political divisions to secure agreement on the aid package before Greece runs out of funds next month.
"Papandreou, by bringing things to a head, has basically, without expecting this to happen, sacrificed his own political career," Sassan Ghahramani, chief executive officer of SGH Macro Advisors, said on Bloomberg Television's "Street Smart." "The price for that has been that the opposition party is now willing to cooperate with a transitional government if it comes into place and show a more united front towards the EU and IMF."
STOCKS DECLINE
Papandreou won the vote in the 300-member parliament by 153 votes to 145, Parliament Speaker Filippos Petsalnikos said in remarks carried live on state-run Vouli TV on Saturday.
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European stocks extended the biggest weekly slide in six and the euro fell before the confidence vote as a meeting of the world's top 20 leaders ended without agreement on how to support the continent's indebted nations. Finance Minister Evangelos Venizelos told lawmakers the outlines of an agreement needs to be in place before a scheduled meeting with European finance ministers on November 7.
"The country risks losing its autonomy, its level of life and the international context is becoming more stifling every day," Venizelos said. "Society must at last be able to breathe and on Monday, the country must be represented in a credible and reliable way at the Eurogroup."
Greek opposition LAOS party leader George Karatzaferis, who controls 16 seats in parliament, will propose a new prime minister as a condition for forming a unity government, according to the Athens News Agency.
'MASKS FALLEN'
Papandreou reinstated Louka Katseli, a former labor minister, to the ruling party's parliamentary group after she cast a vote supporting the government. Her return brings Papandreou's majority back to 153.
"The masks have fallen," Antonis Samaras, head of the New Democracy party, said in an e-mailed statement from his Athens- based office on Saturday. "Papandreou has rejected all of our proposals. The responsibility he bears is huge. The only solution is elections."
The Communist Party of Greece, the third-largest party with 21 seats, and Syriza, which has nine, also rejected the overture from Papandreou, and called for elections. "I won't bow to blackmail," Communist Party leader Aleka Papariga said.
BROADER GOVERNMENT
The government will need the backing of 180 lawmakers to secure approval for Greece's second aid package. Disbursement of funds was halted after Papandreou’s call for a referendum was opposed by German Chancellor Angela Merkel and French President Nicolas Sarkozy.
"In the eyes of Angela Merkel and Nicolas Sarkozy he doesn't have much credibility left," Jacob Kirkegaard, research fellow at the Peterson Institute for International Economics, said in a Bloomberg TV interview. "Greece needs to have a new face to the rest of the world."
Papandreou, a graduate of the London School of Economics and former foreign minister, had survived a confidence vote in June called to rally support for austerity measures demanded by international lenders in return for a continuation of a 2010 bailout, the first for an EU nation. The EU and International Monetary Fund agreed to provide 110 billion euros ($135 billion) in May last year in return for cuts in government spending and public sector jobs.
His referendum plan triggered a suspension in assistance by EU leaders less than a week after they'd approving a second rescue that wrote down the value of Greek debt by 50 per cent.
RESOLVE DEADLOCK
Papandreou's inability to resolve the political gridlock pushed the country closer to the first default by an EU nation even as his scrapping of a referendum averted potential ejection from the 17-member euro region.
European Commission President Jose Barroso said he expected a government of national unity will approve last week's bailout agreement with the EU before Greece runs out of funds, which Greece says could happen in mid-December.
The surprise referendum announcement triggered the biggest two-day slide in the MSCI World Index in almost three years and sent spreads on French, Greek and Italian bonds over bunds to euro-era records. Greek two-year bond yields climbed above 100 per cent for the first time yesterday after the EU blocked aid.
St. Paul, Minnesota-born Papandreou, whose father formed the party at the end of Greece's military rule, had said he was prepared to lose his job if it meant pushing through austerity measures needed to fix Greece's finances. The nation's debt is expected to balloon to 162 per cent of gross domestic product this year.
"I would be very surprised if Greece doesn't default in the next few weeks," Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London. "I cannot see how the Europeans will pay the next tranche knowing that the Greeks will try and renegotiate the rest of the original Oct. 26 package once this payment has been made."