Greek prime minister, George Papandreou, warns that early elections would pose a serious threat to international aid for Greece and could threaten the country's ability to stay within the single currency euro zone.
Greek PM: No referendum on bailout; it's too risky
ATHENS // Greece's prime minister, George Papandreou, last night retreated from his plan for a referendum on the international bailout deal for his country. The idea had riled world leaders and roiled the markets.
In a bid to save his shrinking majority in parliament ahead of a confidence vote today, Mr Papandreou held talks with the opposition conservatives, who had called for a transitional government and new elections. It was unclear whether he secured their support.
The prime minister warned that early elections would pose a serious threat to international aid for Greece and could threaten the country's ability to stay within the single currency euro zone.
"Elections as a solution, today and at this moment, would mean a much greater danger of bankruptcy and of course exit from the Euro," Mr Papandreou told an emergency cabinet meeting.
As yesterday began with Greece's government facing potential collapse, the US president, Barack Obama, Chinese President Hu Jintao and other world leaders began the formal G20 summit in Cannes, France.
Mr Obama said the most important task at the G20 summit was to resolve the European financial crisis.
French President Nicolas Sarkozy scrambled to save the summit he's hosting from being hijacked by the tumult in Greece. Mr Sarkozy said he and Mr Obama agreed the private sector should play a greater role in helping resolve the global financial crisis.
"We have found a common analysis to make the financial world contribute" to finding a solution to the crisis, Mr Sarkozy told reporters after talks with the US president. He said he welcomed Mr Obama's "understanding on subjects such as a tax on financial transactions".
Mr Obama said he and Mr Sarkozy discussed developments in Greece "and how we can work to help resolve that situation." The US president didn't give any details on what the US might do in concert with its European allies.
"The United States will continue to be a partner with the Europeans to resolve these challenges," Mr Obama said.
Mr Papandreou's unexpected announcement on Monday that he intended to put the hard-fought bailout package to a referendum horrified Greece's international partners and creditors, triggering turmoil in financial markets as investors fretted over the prospect of a disorderly default and the country's exit from the 17-nation eurozone.
Mr Papandreou had flown to Cannes on Wednesday, where Mr Sarkozy and German Chancellor Angela Merkel told him Greece would not get the latest funds from its existing bailout until after any referendum. They also said any referendum should be on whether Greece wants to stay in the eurozone or not.
Mr Papandreou said yesterday that he never intended to hold a referendum on Greece's use of the euro, but was simply seeking broader Greek approval for the bailout plan.
While the politics heated up in parliament, the Greek capital stayed calm. At a safe distance from parliament, on the other side of Syntagma Square, one man shouted for Mr Papandreou to resign. "I don't know what to expect anymore. I have a family and I don't know if I will have a job tomorrow," said the 33-year old fitness centre employee who only gave his name as Theodore.
He said that neither Mr Papandreou nor conservative leader Antonis Samaras offered a solution. "But we have to stay in Europe, we have to stay in the Euro, otherwise it will be an even bigger disaster."
Greece's new debt deal would give the country an extra €100 bllion (Dh505bn) in rescue loans from the rest of the eurozone and the IMF - on top of the US$152bn it was granted a year ago - and would see banks forgive Athens 50 per cent of the money it still owes them.
The instability in Greece had ripples throughout Europe. Premier Silvio Berlusconi's government in Italy was teetering as well after it failed to come up with a credible plan to deal with its dangerously high debts, and Portugal demanded more flexible terms for its own bailout. European Central Bank made a surprise decision yesterday to cut interest rates by a quarter of a percentage point to 1.25 per cent, responding to the financial turmoil.
Mr Sarkozy and other top EU officials have long held that it was unthinkable for Greece to quit the euro because it would be, Mr Sarkozy has said, "a failure of Europe".
UN Secretary General Ban Ki-moon yesterday urged the G20 leaders to turn their attention to other pressing world issues, too.
"They should first of all, as leaders of this global economy, and global world, look beyond the immediate concerns - euro crisis - there are so many issues. Billions of people are going hungry to bed, and there are hundreds of millions of people who are sick, who need support," he told The Associated Press in an interview.
"I'm concerned about this deteriorating international economic situation and therefore leaders should show unity of purpose, and they should get united," he said.
The G20 leaders are slated to discuss food security, reform of the international monetary system and the volatility of commodity prices - none of which is expected to get much attention or produce any solid conclusions at a summit so dominated by the European quagmire.
With additional reporting by Associated Press, Agence France-Presse and Bloomberg