ATHENS – Faced with defections by his Finance Minister, Cabinet official and Members of Parliament of his ruling PASOK Socialist party, Prime Minister George Papandreou has quickly withdrawn his plans for a referendum to let Greeks decide whether to support more international bailout loans and the pay cuts, tax hikes, slashed pensions and layoffs that went along with them, what critics derided as “blackmail” that gave Greeks a vote but no real choice. He immediately offered major opposition leader New Democracy party head Antonis Samaras to create a short-term coalition government, which his one-time roommate at Amherst College in Massachusetts said he would accept. It was expected that former European Central Bank Vice-President Lucas Papademos would lead the interim government.
In a reversal just as stunning as Papandreou’s calling for a referendum only days after he got leaders of Europe, and the 17-member Eurozone of countries using the euro as a currency to support another bailout, this one for $157 billion to stave off bankruptcy, Papandreou withdrew the plan in the aftermath of unrelenting pressure, even within his own party, dissension which sealed the fate of the idea critics said was ill-fated. Like the first bailout, a series of rolling loans of $152 billion begun last year by the Troika of the European Union-International Monetary Fund-European Central Bank, the second was attached to more austerity measures that was too much even for PASOK MP’s who had routinely rubber stamped earlier conditions, and who feared if the referendum was held and rejected that it would lead to Greece leaving the Eurozone, giving up the euro and returning to its ancient drachma, and even more fiscal uncertainty.
It was a day of volatile movement in the government and society as Papandreou rejected reports he would meet President Karolos Papoulias and offer his resignation. Papandreou had argued that the Greek public sector was bloated – with generations of political hires under both parties who have taken turns ruling the country – and needed to be cut, but has faced unrelenting demonstrations. Greece’s first bailout set in motion last year, a series of $152 billion in rescue loans, backfired and created a deep recession because of the austerity measures when beleaguered Greeks stopped spending, leading to the closing of more than 100,000 businesses and an unemployment rate topping 17 percent.
Papandreou was isolated after Finance Minister Evangelos Venizelos, four Cabinet ministers and a growing number of PASOK Members of Parliament said they would not support the referendum – and some called for his resignation. He then abandoned the idea to let Greeks decide, although critics said he had offered them a vote but no choice because rejecting the bailout would mean the country would go immediately broke, while supporting it meant they would be endorsing the austerity measures. “Do you want to die or be killed?” is the way Liana Kanelli, a leading Communist MP put it. Papandreou still has to face a Nov. 4 vote of confidence in Parliament he seemed set to lose because of a defection of MP’s in a body where PASOK holds only a two-seat majority because two MP’s said they would not support him and another was against the referendum idea.
Perhaps the last straw for Papandreou pushing the referendum in the face of withering opposition within his own party, country, Europe and the world was the defection of Venizelos, who had been a steadfast supporter of Papandreou’s actions and had been the public face of austerity and tax hikes, but in a written statement made it clear there was a rift because of the referendum plan, saying he didn’t want to put at risk the country’s membership in the Eurozone. “Greece’s place in the euro is a historic achievement that cannot be put into question,” he said. “This established right of the Greek people cannot be put under scrutiny in a referendum. “The main prerequisite for the country to feel safe and stable is for it to actually be safe and stable.”
Papandreou was cornered after French President Nicolas Sarkozy and German Chancellor Angela Merkel, who convinced reluctant EU leaders to keep lending money to a bankrupt country and get half the debt written off, said Greece would not get the next loan installment of $11 billion due this month and that the aid would end if Greeks rejected the referendum, creating the specter of a return to the drachma and the possibility of crippling inflation.
Adding to the pressure for Papandreou were statements from Eurozone leader Jean-Claude Juncker that it was take it or leave it time for Greece. “We can’t ride a permanent roller coaster with Greece,” Juncker said. “We need to know where we’re headed and the Greeks need to tell us where they want to go. I’m decidedly of the opinion that everything must be done to prevent one euro member unlatching itself from the chain, but if that were the wish of the Greeks, and I feel it would be wrong if that was their desire, then we can’t force them to their happiness.” He said: “We’re absolutely prepared” for the possibility of Greece leaving the Eurozone.
European Commission President José Manuel Barroso warned of dire consequences if the referendum had proceeded and been defeated. “Without the agreement of Greece to the EU/IMF program, the conditions for Greek citizens would become much more painful, in particular for the most vulnerable. The consequences would be impossible to foresee,” he said after arriving in Cannes.