Greek rivals hammer out power deal as EU holds back

ATHENS, Greece (AP):

Rival Greek political parties hammered out a historic power-sharing deal yesterday to secure a €130-billion (US$179-billion) rescue package, but markets remained wary and European leaders kept up pressure by holding back a vital bailout loan.

Socialist Prime Minister George Papandreou and conservative leader Antonis Samaras, former college roommates in the United States, held fresh negotiations on the telephone yesterday hours after reaching the landmark agreement to form a coalition for the next 15 weeks.

The new administration's main job will be passing the new bailout package, agreed by international creditors on October 27, before holding early elections.

Papandreou also telephoned European Union (EU) leaders and German Chancellor Angela Merkel, who were reacting warily to Athens' latest political drama.

"Europe, and the German government too, must be able to see that the Greeks are serious, that it is not just about announcements but about actions," Merkel spokesman Steffen Seibert said.

French Foreign Minister Alain Juppe added: "Things are headed in the right direction ... but what's important is that the bailout plan for Greece gets ratified."

Greece has survived since May 2010 on a €110-billion (US$150-billion) rescue-loan programme from Eurozone partners and the International Monetary Fund, but all agree it is not enough. A second rescue package has been created which involves private bondholders agreeing to cancel 50 per cent of their Greek debt.

Frustrated with Greece's political disagreements, the country's creditors have frozen the next critical €8-billion (US$11-billion) loan instalment until Greece formally approves the new debt deal. The Greek government has said it could go bankrupt within weeks without the money.

In Athens, former European Central Bank vice-president Lucas Papademos was being tipped as the most likely new head of the Greek government that would serve until a February 19 general election. None of the people being considered has been announced publicly.

Papandreou agreed to step down midway through his term after his disastrous proposal to hold a referendum on the new bailout spooked markets and credits alone. That proposal was swiftly withdrawn.

Greece has endured 20 months of punishing austerity measures in exchange for the international rescue loans. The efforts by Papandreou's government to keep the country solvent have prompted violent protests, crippling strikes, and a sharp decline in living standards for most Greeks.

"I don't expect anything," Athens resident Stavros Stournaras said of the new political agreement. "When people truly go hungry and there's an uprising, then things will change."