Greek Government in Turmoil as Debt Drama Dominates G20

BY News Desk  November 3, 2011 at 10:09 AM EST

1 p.m. ET | Papandreou abandoned the referendum plan but has also rejected calls for his resignation in lieu of asking opposition members to participate in bailout talks. He said forcing elections would lead to dire consequences for Greece, forcing the country to leave the 17-member eurozone.

Updated 11:20 a.m. ET | Greek Prime Minister George Papandreou indicated willingness to reverse his referendum plan after intense pressure from within the government and from other European leaders. According to the Associated Press,

Ignoring increasing calls to step down, Greece’s prime minister says he is seeking emergency talks with the opposition and warns that an early election would force Greece into leaving the euro currency.

Prime Minister George Papandreou made the comments in an emergency Cabinet meeting Thursday. His office released his speech to the ministers.


Greek Prime Minister George Papandreou arrives for a crisis meeting with the German Chancellor Angela Merkel, French President Nicolas Sarkozy and EU and IMF representatives over eurozone bailot plan ahead of the G20 summit on Thursday in Cannes, France. Photo by David Ramos/Getty Images.

Divisions within Greece’s government have heightened fears that its government — scheduled to hold a no-confidence vote Friday — could collapse ahead of a planned referendum on the massive bailout package proposed by European leaders. The domestic political drama has dominated the G20 summit in Cannes, where leaders from the world’s 20 most influential economies have gathered for their annual meeting.

German Chancellor Angela Merkel and French President Nicolas Sarkozy have held emergency meetings in an attempt to salvage the deal, which was designed to help Greece avert a default on its massive debt.

Greek Prime Minister George Papandreou, whose referendum announcement earlier this week had shocked European leaders and roiled markets, has faced increasing pressure from within his government to resign. The bailout deal, hammered out at a summit in Brussels last week, would have written off 50 percent of Greece’s debt and imposed austerity measures, which have sparked protests in Greece in recent months.

Greece was scheduled to receive another 8 billion euros of bailout money this month, but Sarkozy and Merkel have indicated that Greece will not receive it until after the yet-to-be-scheduled referendum (which would likely not take place before December), meaning the country could run out of money within weeks.

Greece’s finance minister, Evangelos Venizelos, released a statement in opposition to the referendum, saying

Greece’s position within the euro area is a historic conquest of the country that cannot be put in doubt. This acquis by the Greek people cannot depend on a referendum.

The country must feel safe and stable and that is the first requirement in order for it to be truly safe and stable. Greek banks are totally secure, as an integral part of the European banking system. This was apparent last night from the discussion in Cannes.

The uncertainty has prompted worst-case scenario planning in Cannes. According to the Washington Post,

In what they described as a “difficult” meeting with Prime Minister George Papandreou, European leaders and officials from the International Monetary Fund laid down a firm line: He was free to proceed with plans for a nationwide vote on whether Greece wants to continue under an international emergency program that has demanded stiff austerity measures. But he would get no other help in the meantime, and if Greek citizens reject the program, they would effectively be rejecting the euro.

It was the most direct acknowledgment yet by top European leaders that a breakup of the euro is not only possible but so tangible they need to begin making preparations.

On Wednesday’s NewsHour, we looked at the challenges facing leaders at the G20 summit as they struggle to preserve the debt deal:

Watch European Leaders Struggle to Hold Together Greek Bailout Deal on PBS. See more from PBS NewsHour.

We’ll have more updates and analysis on Thursday’s NewsHour. View all of our World coverage and follow us on Twitter.