Greek Government Tottering

Greek Prime Minister George Papandreou's days and even hours appeared to be numbered after a mutiny within his bloc of parliamentary deputies.

The ruling socialists were left with a majority of 2 MPs after the resignation on Tuesday of Milena Apostolaki from Pasok, calling the prime minister's idea of holding a referendum on a new, 100bn euro bailout package approved in Brussels last week "deeply divisive". She is holding onto her seat as an independent. Another two socialist MPs, Vaso Papandreou and Eva Kaili, have asked for a national unity government.

Eva Kaili also asked the PM to step down. Vaso Papandreou declared that "the country is threatened with imminent bankruptcy. I call upon the President of the Republic to call a meeting of party leaders with the object of forming a government of national salvation that would secure the aid package agreed on October 27, and then immediately take the government to national elections."

It is increasingly clear that Papandreou would not survive Friday's confidence vote on the strength of its 150 remaining MPs, and the government could well fall sooner. A cabinet meeting on Tuesday night eventually backed the referendum idea, but it is far from clear whether all ministers are agreed on the terms on which it should be carried out.

Were Papandreou to go, a smooth transition scenario would entail a government of national unity with the conservatives once he had done so, and a caretaker prime minister acceptable to both sides - possibly one pulled from retirement - put in his place. The bumpier scenatio would have Greece going directly to an election that would likely lead to a hung parliament and a coalition process.

Conservative leader Antonis Samaras told his MPs on Wednesday that he vowed to rid the country of what he called an irresponsible and dangerous government. New Democracy had denounced the referendum as soon as it was announced as a risky strategy that forced a disoriented, impoverished and divided population to "vote their fear" - leaving the euro - over their anger at the austerity they had to endure. The party renewed its call for elections.

An opinion poll by Kappa Research in Sunday's Vima newspaper said that 70 percent of Greeks would rather remain in the euro than return to the drachma. At least two thirds of Greeks have consistently responded in favour of remaining within the euro over the past several months.

Other observers have said the referendum, which Interior Minister Haris Kastanidis said would likely take place in January, is effectively putting Greece in a three-month long pre-election period it can ill-afford. Should the referendum fail, it puts Greece on a track of leaving the euro, since the austerity terms accompanying the bailout are the only way for Greece to remain within the eurozone. Outgoing ECB president Jean-Claude Trichet and French President Nicholas Sarkozy have told media since the October 26 summit that Greece got into the euro through fraudulent claims and should never have been allowed to do so. "It's economy was not ready," said Sarkozy.

It appears that Papandreou was looking for a way to re-legitimise his government, which has shown signs of fatigue after two years of dealing with Greece's sovereign debt crisis alone. Every time he has brought an austerity bill to parliament the opposition has forced his government and MPs to carry the political cost alone. This has led to the loss of three seats, two failed overtures for a coalition with the leading opposition conservatives, and one reshuffle. Papandreou himself was humiliated by being excluded from talks in Brussels last month leading to a 50% writedown on Greek bonds for private investors.

An early election was out of the question for Pasok, which in opinion polls has been garnering around 15 percent compared to New Democracy's 22 percent of the popular vote were elections to happen now. It is a disgraceful descent from the 44 percent of the vote that unexpectedly catapaulted Papandreou to power just two years ago.

Evidently Papandreou decided that a referendum was the way to go. He could bypass the bruising experience of a parliamentary discussion and use the one issue Greeks overwhelmingly agree on - remaining within the euro - to renew his government's tattered authority. On the back of this, he would pass further austerity measures and remain in power long enough to reap political credit for the fruits of them. The strategy backfired horribly.

New Democracy said it was "determined to pre-empt such political experiments" and called elections a "national necessity". All opposition parties followed ND's stance, declaring themselves categorically against the referendum. 

Markets tumbled across Europe and in the US on Tuesday, with the Athens Stock Exchange falling by 6.9 percent, and the euro retreated against the dollar. Italian bond spreads with the German bund reached a record 455 basis points.

Technicalities

The vote of confidence would normally not be a big hurdle for Papandreou. He would need an absolute minimum of 120 votes in the 300 seat legislature. (To put it technically, according to parliamentary rules, he needs an absolute majority of the MPs present at the vote, but musc secure a minimum of two thirds of MPs). When his party controlled 153 seats he could have passed it handily. But not with an internal revolt.

The referendum requires Papandreou to mobilise his cabinet to send a request to parliament. There, the motion has to receive an absolute majority of 151 seats, in order to go to the president, Karolos Papoulias, who then issues a decree for the referendum.

In the referendum itself, according to article 44 of the constitution, if the motion in question has not already been put to parliament, Papandreou requires an absolute majority of at least 40% of Greek voters. If he sends the bailout package to parliament in the form of a bill, he will need an absolute majority of 50% of voters.