Greek Leaders Reach Deal to Create Unity Government

Greek Prime Minister George Papandreou and opposition leader Antonis Samaras agreed late Sunday to create a transitional administration to oversee the country’s debt deal with the European Union and then hold early elections. Papandreou has agreed to resign once the details are completed, according to a statement read on Greek media Sunday night. Papandreou and Samaras will meet Monday to discuss who will act as interim prime minister and the makeup of the Cabinet.

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The agreement puts an end to a political deadlock that threatened to topple Greece, creating a domino effect that would likely have seen Italy soon follow. European leaders finally struck a debt-relief deal with Greece on October 26 that is seen as crucial to containing the crisis in Greece and protecting Italy, but that deal was in danger last week when Papandreou called for a referendum on deeply unpopular austerity measures that its troika of lenders — the European Union, European Central Bank, and International Monetary Fund — required in order for Greece to receive any more bailout funds. Without the bailout, Greece would surely have defaulted on its debt.

The austerity measures that have held the Greek Parliament hostage, trapped between its troika of lenders and a vocal citizenry, include layoffs of government workers, as well as permanent foreign monitoring in Greece to ensure that it follows through on its pledges of structural reform — a requirement that many Greeks see as an affront to their national sovereignty.

With a narrowing majority in Parliament, Papandreou’s Socialist government found that it was unable to unify lawmakers in order to push through such measures on its own. Antonis Samaras, leader of the conservative New Democracy party, opposed many of the debt deal’s provisions and demanded Papandreou’s resignation and a snap election. However, Papandreou ultimately withdrew his call for a popular referendum on Thursday, and survived a confidence vote in Parliament on Friday, setting the stage for Sunday’s compromise.

Both of the two major parties will share power in the new unity government, which is expected to be led by a non-politician and to govern for several months, long enough to both carry out the debt deal and pass a new budget. In a statement early Monday morning, the Greek Finance Ministry said that the two parties consider February 19 to be “the most appropriate date for elections.”

In order to effect the deal, Papandreou had to agree to step down as prime minister, while Samaras had to back the debt deal and a seven-point plan of priorities, proposed by Papandreou, that would essentially commit the new government to the terms of the debt deal, ensuring that it would be unable to renege after Papandreou was no longer in power. While Samaras is not expected to play a role in the unity government, he will likely be New Democracy’s candidate for prime minister in the general election early next year.

The new interim government gives European leaders time to put together a stronger bailout mechanism to protect larger economies from the risk of default. “The decision is very positive, because it will appease the markets and because it shows that Greek authorities are doing what foreign leaders want them to do — to get on with implementing the conditions for the EU debt deal,” said Athanassios Papandropoulos, an economist and commentator for the conservative Greek newspaper Estia.

However, Papandropoulos added that the unity government would likely be unable to get Greece back on the road to economic, political, and social recovery. “I don’t think it will work,” said Papandropoulos. “It will last three months, then we’ll have elections, and then we’ll have the same problems all over again.”

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The new unity government has been charged with completing the legal and financial terms of private-sector involvement in the Greek rescue, securing the release of a new installment of 20 billion euros in foreign aid, and approving the austerity measures that Papandreou’s government accepted in talks with troika leaders, among other tasks.