Challenge from Finance Minister Could Topple Greek Government Tomorrow

Greek Prime Minister George Papandreou is fighting for his political life after his finance minister and two other ministers withdrew their support for a referendum on the latest European bailout plan announced on October 26. Papandreou has lost a critical mass of support from his parliamentary bloc that make a vote of confidence tomorrow tantamount to suicide. His preference for a referendum also seems doomed because ministers and MPs have distanced themselves from the proposal as too risky.

The demise began late last night when Deputy Prime Minister and Finance Minister Evangelos Venizelos openly challenged the prime minister’s insistence on a referendum, which would let the people decide whether Greece should accept Europe’s latest bailout plan for Greece. This just hours after Prime Minister George Papandreou met with the French and German leaders in Cannes, and secured their reluctant agreement to the referendum. But the eurozone’s leaders suspended Greece's sixth instalment of 8bn euro under the existing bailout, and said, the referendum has to be on whether Greece wants to remain within the euro. That is exactly what Greece's opposition parties and many ruling party MPs don't want to risk, because it could signal a Greek return to the drachma. In a gruelling cabinet meeting that started on Tuesday and ended on Wednesday, Papandreou had been convinced not to frame the referendum as a question of remaining within the euro.

Venizelos said Greece’s membership of the euro should not be risked on the outcome of a referendum. That makes him the only cabinet member to disagree with the initiative, which ends the consensus reached in the small hours of Wednesday after a gruelling cabinet meeting, and could split the party ahead of tomorrow's vote of confidence. It also makes him the fourth socialist member of parliament to dispute the referendum, putting the party's mathematical majority in the red by two votes.

Venizelos is thus setting the stage for a succession, either immediately or after the vote of confidence if it fails. If he feels he has the support of the party's 151 remaining MPs (after two declarations of independence since Tuesday) and a handful of independents, he could oust Papandreou through a parliamentary procedure similar to that seen in January 1996, which replaced the ailing Andreas Papandreou, George's father. Otherwise Pasok could go to a messier vote among its party base, like the vote that allowed George Papandreou to prevail over Venizelos in November 2007.

There were unconfirmed reports earlier today that Papandreou was on his way to ask the president, Karolos Papoulias, to help form a government of national unity that would include the ruling socialists. An emergency cabinet meeting was ongoing on Thursday in parliament.

In Cannes Papandreou was prevailed upon to move up the date of the referendum to December 4. Originally it had been scheduled for January. "I believed it important that the Greek people have the chance to declare themselves on the [European] Council's decisions of October 26. It is their democratic right. And I believe the Greek people to be mature and wise... It isn't just about a progrmame. It's about whether or not we want to remain within the eurozone," he told reporters. Asked what he would do if the government lost the referendum, he said "The answer will be yes."

The language among the eurozone's leaders is reflecting the growing realisation that Greece could default and exit the euro, whereas the topic was taboo only a week ago. “We would like Greece to remain a member but we’re not saying Greece has to stay a member at all costs,” Eurogroup President Jean-Claude Juncker told Bloomberg. "The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?" asked German Chancellor Angela Merkel after meeting Papandreou in Cannes yesterday.

Full text of Finance Minister Evangelos Venizelos' statement:

"Greece's place within the euro is a historic achievement that cannot be put in doubt. This conquest of the Greek people cannot depend on the outcome of a referendum.

"The country has to feel safe and stable, and that is the first prerequisite for it to be safe and stable. Greek banks are entirely guaranteed as an integral part of the European banking system. That much was clear last night in Cannes.

"What is foremost is the disbursement of the sixth instalment [of the first bailout loan] as agreed by the Eurogroup on October 26, after a ten hour battle.

"The next step is the activation before the end of the month of the new support programme [bailout], which gives Greece another 130 billion euro and leads to a reduction of our public debt by about 100 billion euro. The completion of these procedures is a national imperative.

"I left hospital and went to Cannes because I consider that it was a matter of duty to the country. With the first hand view of the situation in Europe and internationally, I am obliged to tell the Greek people the full and simple truth: If we want to protect the country, we must, under conditions of national unity and political sobriety and consensus implement without delay the decision of the 26th of October. Now, as quickly as possible.

"Towards this end, the government's initiatives and the initiatives of the [socialist party's] parliamentary bloc of deputies are insufficient. Everything that is being said and done on a Europen and international level is equally pertinent to the opposition, particularly the main [conservative] opposition, which is the recipient of the message from Cannes. Its stance, were it a positive one, would act as a guarantee for the country's international credibility, but being negative hurts that credibility at an enormous cost to the Greek citizen.

"What is at stake is not the political dynamics at home or the future of particular individuals or parties, but the salvation and resitution of the country through the only feasible process, which is enshrined in the October 26 decision."

Other Developments

Socialist MP Eva Kaili, who asked Papandreou to form a government of national unity earlier this week announced today that she is not going to support the government in a vote of confidence tomorrow nor resign her seat, and effectively declared herself independent.