Euro debt crisis: Greek PM resigns

UPDATED: Greece's embattled prime minister, George Panandreou, has resigned as a condition on forming a new national unity government to manage the EU's bailout package.

The agreement came after a meeting between the ruling socialist party and the main opposition parties.

The interim government is intended to lead Greece “to elections immediately after the implementation of European Council decisions on October 26,” a statement from the office of President Karolos

The late-night announcement eases tension ahead of the markets opening in Europe tonight (NZ time).

Both sides will meet again later today to decide who will be the head of the new government with a separate meeting to discuss the time frame and the government’s mandate, the statement said.

President Papoulias will also host talks with all political party leaders today as well.

Greece's prime minister, George Papandreou, is expected to resign shortly as a deal for an interim coalition government is agreed, latest reports from Athens say.

Mr Papandreou and opposition leader Antonis Samaras will meet President Karolos Papoulias after a Sunday cabinet meeting to thrash out the structure of a new interim coalition administration to implement the eurozone bailout.

Sharemarkets in Europe and North America fell further on Friday at the end of a tumultuous week in which socialist leader Mr Papandreou first announced and then ditched a plan for a referendum on a euro zone bailout.

Mr Samaras, the right-wing New Democracy leader, has made Mr Papandreou’s resignation a condition on talks to decide the main goal, duration and leader of the new government.

Evangelos Venizelos, the finance minister, has assumed a key role as the most likely new prime minister. He is under heavy pressure to tell fellow eurozone finance ministers in Brussels on Monday that Greece is on the way to reaching a broad national consensus on backing the €130 billion bailout deal.

That deal aims not only to save Greece from bankruptcy but also to prevent its problems plunging much bigger economies such as Italy and Spain into full-blown crisis.

European Union leaders have pledged that Greece will receive not one cent more in European aid until it has signed up to the latest bailout, the second package since Athens had to go cap in hand to the EU and IMF in May last year.

The bailout includes €30 billion to recapitalise struggling Greek banks, €30 billion to support fiscal adjustment and €20 billion for bond swaps under a scheme for investors to take a 50% “haircut” on their holdings of Greek debt.

Mr Samaras says his conservative party is ready to back the second bail-out programme but only after an election, while the leaders of two other smaller conservative parties, Laos (Popular Orthodox) and Democratic Alliance, say they won’t join a coalition unless New Demcracy agrees to participate.

Two of Greece’s two left-wing parties have also turned down Mr Papandreou’s proposal. The radical Syriza party also wants immediate elections while the communists say they will not be “blackmailed” into supporting a coalition.

Unstable proportional politics
Greek politics are complicated by its proportional voting system, which despite a “reinforced” majority that gives the biggest party a 50-seat premium, has failed to deliver stable government.

The ruling socialists have only a three-seat majority of 153 members (including the 50-seat premium) in the Hellenic Parliament  with New Democracy having 85.

Three smaller recognised parties have 21, 16 and nine seats respectively, while repeated expulsions and resignations of individual MPs from the established parties due to the debt crisis has created four unrecognised party groupings as well as six independent MPs.