Greek government faces collapse as Papandreou is left with few friends

THE Greek government is today on the verge of collapse with its prime minister George Papandreou expected to lose a confidence vote after he dramatically dropped his plans for a referendum on the European Union bail-out package for his country.

Mr Papandreou made his decision after meetings with French president Nicolas Sarkozy and German chancellor Angela Merkel on Wednesday night as European leaders viewed the prospect of a referendum with horror.

But when he flew home yesterday he was forced to open talks with opposition leaders to try to hold his government together.

Having resisted urgings from the leaders of France and Germany to drop his referendum plan Mr Papandreou had his hand forced by his finance minister, Evangelos Venizelos, who broke ranks and declared his opposition to a referendum.

“Greece’s position within the euro area is a historic conquest of the country that cannot be put in doubt,” he said.

Mr Venizelos said the country’s attention should instead be focused on quickly getting a crucial €8 billion euro (£6.9bn) instalment of international bail-out funds, without which it faces bankruptcy within weeks.

Mr Papandreou said he never intended to hold a referendum on Greece’s use of the euro, but was simply seeking broader approval for the bail-out plan.

Greece’s new debt deal would give the country an extra €100bn (£86bn) in rescue loans from the rest of the eurozone and the International Monetary Fund – on top of the €110bn it was granted a year ago.

It would also see banks write off 50 per cent of the money Athens still owes them. The goal of the programme is to reduce Greece’s massive debts to the point where the country is able to handle its finances without constant bailouts.

The political drama is not over. Mr Papandreou has called a confidence vote on his government for tonight, and his majority was reduced to the bare minimum when Socialist MP Eva Kaili said she would not vote in favour.

It was clear that he would find no support from opposition parties who are largely opposed to the austerity measures.

Opposition leader Antonis Samaras called on the PM to resign and led his party in a dramatic walkout during a parliamentary debate about the viability of the government.

Mr Papandreou sparked a global crisis on Monday when he announced he would put the latest European deal to cut Greece’s massive debts – an accord that took months of negotiations – to a referendum.

The idea horrified other EU nations and Greece’s creditors, triggering turmoil in financial markets as investors fretted over the prospect of Greece being forced into a disorderly default.

Speaking to his ministers, Mr Papandreou said his proposal to hold a referendum “has at least brought many people toward a rational view” of Greece’s dire economic situation. Several Greek MPs had called for a coalition unity government.

DAVID MADDOX