Papandreou Offers to Quit for Unity Cabinet
By Natalie Weeks and Maria Petrakis - Jun 15, 2011 6:59 PM GMT+0200 Wed Jun 15 16:59:45 GMT 2011
Greek Prime Minister
George Papandreou offered to step aside to permit the formation of a unity government
, as long as all opposition parties agreed to cuts required by an international bailout, said a person with direct knowledge of the matter.
Papandreou’s bid, coming amid mounting popular protests and defections among his allies, countered a demand by the New Democracy opposition party that he quit and allow a so-called technical government renegotiate the terms of the rescue.
The political turmoil came as European Union talks on forging a new bailout to prevent the first euro-area default stalled. The impasse over the aid formula and speculation of an impending government shakeup sent Greek bond yields surging to a record high and the euro weakening today.
“When a government has so profoundly misjudged the anger, frustration and disillusionment in the population it is a matter of time until changes have to set in,” Jens Bastian, a visiting economist at St. Antony’s College, Oxford University in
England, said in an interview.
Yields on 10-year Greek bonds neared 18 percent, the highest in the 17-nation euro area’s history. The slump pushed the extra yield that investors demand to hold Greek 10-year bonds instead of similar maturity German bunds to a record 1,491 basis points. The euro weakened 1.7 percent to $1.42 at 5:50 p.m. in
London. The cost to insure Greek debt climbed to a record, indicating an about 75 percent chance of default within five years.
European Infighting
Greek economic prospects darkened amid infighting by euro finance officials over how to enroll investors in a bailout without triggering a default. More than 20,000 people rallied against wage reductions and tax increases as lawmakers debated the budget cuts and asset sales that are conditions of the aid.
Ports, banks, hospitals and state-run companies were paralyzed by strikes, while a Papandreou ally said he won’t support the austerity measures and another bolted his Socialist Party.
The third general strike this year underscored the pressure on Papandreou, who aims to get 78 billion euros of cuts and asset sales passed by the end of the month. His Socialist Pasok party held a six-seat edge in the 300-member legislature before defections by two erstwhile allies.
Demonstrators have gathered in the central square of
Athens in front of parliament for 21 days, setting up tents and calling on others to join them. Police said the largest rally was on June 5, when 50,000 people gathered in front of the chamber.
Debt restructuring “seems to be increasingly probable,”
Raghuram Rajan, a professor at the
University of Chicago and a former chief economist at the IMF, said today in
Singapore. “The political will required to do what would be necessary to service the level of debt that is building up is reaching the limits of what
Greece can do.”
(Bloomberg)