- Associated Press - Monday, November 7, 2011

ATHENS, Greece — Rival Greek political parties tried on Monday to hammer out a historic power-sharing deal to secure a €130 billion ($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 U.S, held fresh negotiations on the telephone Monday, 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 Oct. 27 — before holding early elections.

Papandreou also telephoned 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.”

Papandreou is expected to resign after a power-sharing deal is reached, but none had been announced at 11 p.m. (2100 GMT) Monday. A senior conservative official told The Associated Press that the talks were still under way. The official spoke on condition of anonymity because he was not authorized to talk to the media on the subject.

In Brussels, Jean-Claude Juncker, the chairman of the Eurogroup, kept the pressure up on Greece by saying that eurozone finance ministers who had met there have asked the leaders of Greece’s two main parties for a co-signed letter reaffirming their commitment to the country’s bailouts and economic reforms.

EU Monetary Affairs Commissioner Olli Rehn said that Greece can receive the next €8 billion slice of its first bailout in November, if both parties commit to the bailout program.

Greece has survived since May 2010 on a €110 billion ($150 billion) rescue-loan program from eurozone partners and the International Monetary Fund, but all agree it’s not enough. A second rescue package has been created in which involves private bondholders have agreed to cancel 50 percent of their Greek debt.

Frustrated with Greece’s political disagreements, the country’s creditors have frozen the next critical €8 billion ($11 billion) loan installment 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 and European Ombudsman Nikiforos Diamantouros were being considered as candidates, officials with knowledge of the negotiations told The Associated Press. They asked not to be identified, citing sensitivity of the talks.

The new prime minister would serve until a Feb. 19 general election. None of the people being considered have been announced publicly.

“The government that will emerge will only have the mandate to secure the loan installment and (pass) the new loan agreement,” New Democracy lawmaker Costas Gioulekas told the AP. “Everything else must be handled by a government to be chosen by the people through elections.”

The Athens Stock Exchange closed up 1.39 percent at 761.04, lifted by a bank rally. European stocks rebounded from Greece-related losses early in the day on speculation that troubled Italian Premier Silvio Berlusconi could soon resign, allowing another new government to press through economic reforms so that Italy can avoid financial disaster.

“What is clear is that the European partners are becoming more and more intransigent with Greece and they will want evidence of concrete advances on Monday evening,” said Silvio Peruzzo, an analyst at Royal Bank of Scotland.

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.”


Kantouris reported from Thessaloniki, Greece. Gabriele Steinhauser in Brussels, Geir Moulson in Berlin, Pierre-Yves Roger in Paris, and Theodora Tongas in Athens also contributed.

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