Greek parties agree to form unity government

Greece’s ruling socialists and opposition conservatives agreed to form a unity government Sunday, ending a week of political turmoil that threatened to push the country into bankruptcy and out of Europe’s single currency.

Under the agreement, beleaguered Prime Minister George Papandreou will step down and his successor will be decided in a second round of talks Monday.

Former Bank of Greece Gov. Lucas Papademos, European ombudsman Nikiforos Diamantouros and independent deputy Elsa Papadimitriou are on the successor list, said a senior official who requested anonymity because of the talk’s sensitivity.

The agreement was reached during crisis talks called by the country’s president, Karolos Papoulias, who mediated between Papandreou and conservative New Democracy leader Antonis Samaras.

The duration of the new government remained unclear, but a statement issued by the president’s office said elections would be held once Greece’s agreement to implement a package of loans and bailouts offered by its European neighbors had been secured.

The landmark agreement follows immense pressure from concerned European officials who wanted to see quick implementation of the new debt deal to prevent the Greek crisis from spilling over to larger economies such as Spain and Italy. Officials warned over the weekend that Greece’s failure to form a unity government would spell its exit from the Eurozone.

Specifically, European Union Economic and Monetary Affairs Commissioner Olli Rehn said Greece had breached the confidence of its Eurozone partners last week and had put itself “on a path toward leaving the single currency, but now appeared to be back from the brink.”

Sunday’s power-sharing deal is expected to offer some respite and reassurance to skittish international investors who saw the value of the euro seesaw and shares of global stock markets sink last week.

Papandreou’s imminent resignation will cap a two-year tenure that has seen the 59-year-old American-born leader go from surging to the helm of government as one of the country’s most popular prime ministers to facing a near-ignominious fall last week when he barely managed to survive a confidence vote as scores of his deputies called for him to step aside.

His credibility both at home and abroad was crushed after he announced surprise plans to put the new European loan agreement to a referendum. He later backed down.

The European plan calls for private banks to take a 50% write-down on the value of Greek bonds they hold and for the Greek government to get a $140-billion loan in the second bailout stitched together by the European Union and the International Monetary Fund in a year. Failure to ratify the plan would block the release of $11 billion in rescue funds that Greece desperately needs before its cash reserves run dry by Dec. 15.

The sober-sided antithesis of his father, who founded of the socialist PASOK party, Papandreou is expected to retain leadership of the group.

“It’s not the most graceful of ends,” said a Cabinet minister who requested anonymity. “But he was politically shattered. He had grown tired. He wanted to leave.”

Carassava is a special correspondent.