ATHENS, Greece — Greece’s embattled prime minister and main opposition leader agreed Sunday to form an interim government to ensure the country’s new European debt deal, capping a week of political turmoil that saw Greece face a catastrophic default that threatened its euro membership and roiled international markets.
As part of the deal, Prime Minister George Papandreou agreed to step down halfway through his four-year term. He and conservative opposition head Antonis Samaras are to meet today to discuss who will become prime minister and the makeup of the Cabinet.
The new unity government’s main task will be to pass the European rescue package, reached after marathon negotiations between European leaders barely a week ago — a move considered crucial to shoring up the euro. The interim government will then lead the country into early elections, expected early next year.
Officials had been eager to reach some form of agreement before a meeting of eurozone finance ministers in Brussels today.
“It’s a breakthrough,” government spokesman Elias Mossialos said. “It is a historical day for Greece; we will have a coalition government very soon, early next week.”
Papandreou sparked the latest crisis by announcing last week that he was taking the hard-fought debt agreement to a referendum. That outraged European leaders, who said such a vote could raise the specter of Athens leaving the common currency — setting off an unpredictable chain reaction that could drag down other European countries.
They also warned that a vote would jeopardize the disbursement of a vital $11 billion installment of Greece’s existing $152 billion bailout, which the country desperately needs to avoid the potential of a catastrophic default within weeks.
In the ensuing market turmoil, Italy — which also faces severe financial difficulties but is considered too big to bail out — saw its borrowing costs spiral, sparking fears it could be dragged into the fray.
Papandreou withdrew the referendum plan Thursday in the wake of European anger and after it sparked a rebellion among his own Socialist lawmakers, many of whom called for him to resign.
Any interim government that is formed with the support of both major parties will be almost guaranteed to push the European rescue package through parliament.
The new European deal would give Greece an additional $179 billion in rescue loans and bank support. It would also see banks and private investors write off 50 percent of their Greek debt holdings, worth $138 billion. The goal is to reduce Greece’s debts to the point where the country is able to handle its finances without relying on constant bailouts.
Sunday’s agreement came after a late-night meeting between Papandreou and Samaras called by President Karolos Papoulias at Papandreou’s request to end a two-day deadlock. Direct talks had failed to get off the ground because Papandreou had said an agreement had to be reached on a new government before he stepped aside, while Samaras insisted Papandreou resign before the start of negotiations and demanded quick elections.
The Finance Ministry said a late-night meeting between its minister, Evangelos Venizelos, and opposition party members determined Feb. 19 was the “most suitable” date for elections.
Two turbulent years after coming to power in a landslide election victory, Papandreou has seen his popularity plummet as his government has been forced to severely cut spending while hiking taxes to tackle a runaway deficit and debt that led Greece to become the first eurozone country to seek an international bailout.
Ireland and Portugal have since followed suit, but European leaders have been desperate to ensure that other countries with larger economies are not also dragged down.
In spite of the deal, Asian stocks stalled early today as investors remain unsure whether Greece will be able to work itself out of a debt crisis.
Japan’s Nikkei 225 index fell 0.6 percent to 8,752.64. South Korea’s Kospi lost 0.4 percent to 1,920.80, and Australia’s S&P/ASX 200 was down 0.5 percent at 4,262. Hong Kong’s Hang Seng fell to 19,823.12.
