Report: Papandreou To Step Down In Deal To Back Greek Bailout

In a stunning about face, embattled Greek Prime Minister George Papandreou appears to have scrapped his planned public referendum on the EU bailout plan and membership in the EU and is instead focused on forming an interim government that would approve the EU bailout.

The reason for the apparent flip-flop on the referendum issue, which held markets around the globe captive this week, wasn’t the revolt he faced from within his own party or the angry responses from EU leaders. The FT reports that Papandreou said the referendum was no longer needed after he negotiated the support of the EU bailout with his political opposition.

According to the FT, the Prime Minister told colleagues on Thursday, “Failure to back the package would mean the beginning of our departure from the euro. But if we have consensus, then we don’t need a referendum.”

In addition, Reuters is reporting that Mr. Papandreou has reached an agreement with his party’s ministers to step down as Prime Ministers should his government win the confidence vote scheduled for Friday.

The plan appears to be for Papandreou to establish a “non-political” coalition government which would be in place for a short period of time. The primary goal of the interim government would be to oversee the ratification of the EU bailout agreement. The government would then hold public elections.

There are two key components of this deal. First, that Papandreou’s government wins the confidence vote on Friday. And second, that the Prime Minister resign from office once the vote has been won.

The resignation of Papandreou appears to be an important part of the way forward. Recall that six of his party ministers had called for his resignation this week while others had defected. This meant Papandreou was without the all-important majority in the Greek parliament, leaving him powerless to push through the reforms necessary to qualify for the €130 billion EU bailout.

Many in Papandreou’s party were furious with Papandreou’s decision made on Monday to allow Greek citizens to vote on both the EU bailout and membership in the Eurozone.

A source told Reuters on condition of anonymity, that Papandreou was told that “he must leave calmly in order to save his party.” According to Reuters, the source said that Papandreou agreed to step down without acrimony.

What is hopefully the final chapter of this saga will play out on Friday when the Greek parliament holds the confidence vote for Papandreou’s government. If the vote is won, it would appear that the saga is over. However, the vote is lost, there will likely be more upheaval in the global markets.

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