Greek Prime Minister George Papandreou’s grip on power weakened before a confidence vote on Nov. 4 as his decision to call a referendum on a new bailout package provoked a lawmaker rebellion.
Milena Apostolaki said she will defect from Papandreou’s socialist Pasok party. With Kerdos newspaper reporting that Eva Kaili will also abandon Pasok, Papandreou would only control 151 seats in the 300-seat chamber. Six members of the party called on the premier to resign in a joint letter, Athens News Agency said today. Greek ministers meet at 6 p.m. local time today.
Stocks fell, the euro tumbled and Italian bonds plunged on concern that the referendum, which blindsided Greek lawmakers as well as European policy makers, will push Greece into default if the bailout is rejected. Austerity steps imposed by creditors have sparked a wave of social unrest in the past 18 months, undermining support for the government. Papandreou won his last major vote on austerity measures by 154 votes to 144 on Oct. 20.
“If it continues with Papandreou and the referendum, we will end up with a default and the default will push us into the drachma,” said former Greek Finance Minister Stefanos Manos in an interview with Dublin-based broadcaster RTE today. The referendum call puts in jeopardy the payment of the next installment of bailout funds by the International Monetary Fund and the European Union, he said.
Another key member of the ruling party, Vasso Papandreou, called on the Greek president to move towards forming a national unity government.
Forced Default
German bunds jumped, sending yields down the most since March 2009, and the euro weakened while stocks and U.S. futures fell. German 10-year yields slipped 25 basis points to 1.78 percent at 12:47 a.m. in London. Italian bonds dropped, pushing the 10-year yield to as much as 452 basis points above benchmark German bunds, a euro-era record. The euro was 1.7 percent lower at $1.3716 after yesterday’s 2 percent decline.
A rejection of the EU-IMF aid plan “would increase the risk of a forced and disorderly sovereign default” and increases the chance of Greece leaving the euro, Fitch Ratings said in a statement today.
Papandreou, 59, wants to hold a referendum after details of last week’s second bailout package for Greece are approved. The vote of confidence in Parliament will begin tomorrow and conclude late on Nov. 4.
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