ATHENS - A new Greek interim government will be announced on Wednesday afternoon, a government official said, after critical power-sharing talks between the country's two main parties dragged into a third day despite intense European pressure.
Negotiations between Prime Minister George Papandreou and opposition leader Antonis Samaras began Monday to resolve a political crisis that is threatening to cut Greece's loan lifeline and could even force it out of the euro -- in an ignominious first for the 17-member currency union.
The two reached a historic weekend agreement to forge an interim government that will shepherd the country's new C130 billion ($179 billion) European rescue package through Parliament. Approval of the deal will allow the release of a C8 billion ($11 billion) loan installment, without which Greece will go bankrupt before Christmas.
The squabbling in Athens came as a far more serious threat emerged to the euro, with the borrowing costs of one of Europe's largest economies hitting historic highs amid a government crisis in Rome. Italian Premier Silvio Berlusconi announced he would resign after Parliament passes economic reforms demanded by the EU to keep Italy from sinking into Europe's debt mess.
Both Mediterranean nations are under heavy pressure to reassure financial markets that the 17-country eurozone is moving quickly to reduce crippling government debts before they break apart the monetary union and plunge the world into a new recession.
Greece's Papandreou has agreed to step aside once a power-sharing deal is reached. His surprise announcement last week that he would put the new debt deal to a referendum sparked the latest political crisis, leading to an angry backlash from European leaders who had hammered out the agreement barely a week before, and a revolt from Papandreou's own Socialist lawmakers. He withdrew the plan after Samaras indicated he would back the debt deal.
As coalition talks spilled over into a third day without any public announcement of who will take over as interim premier, a government official said Papandreou would visit the country's president by around midday. The makeup of the new Cabinet would then be announced in the afternoon following a meeting between party leaders. According to protocol, government changes must be announced to the president, who holds a largely ceremonial post.
The official spoke on condition of anonymity because he was not authorized to speak on the record.
By Tuesday night, officials on both the governing Socialists' side and the opposition conservatives said the most likely candidate to replace Papandreou was former European Central Bank vice-president Lucas Papademos. The officials spoke on condition of anonymity as no candidates' names were being made public.
Early in the afternoon, Papandreou had said that a deal was close.
But as the evening wore on, several government and opposition lawmakers said a main sticking point arose after European officials demanded written guarantees by both main parties that they supported the new debt deal -- a demand with which the opposition conservatives took grave issue.
However, opposition conservative party spokesman Yiannis Michelakis indicated the Socialists were to blame, saying that any signs of progress would come from the prime minister's office rather than opposition party headquarters.
On Monday, eurozone finance ministers said the heads of the two main parties had to commit in writing to the terms of the country's bailouts before Athens can receive the next loan installment.
"It is indeed essential that a new government will express its explicit and unequivocal commitment in writing concerning all the decisions taken by the 17 euro area member states on Oct. 27," EU economic affairs commissioner Olli Rehn said in Brussels Tuesday.
The next rescue loan installment "can then be disbursed once there is full clarity about Greece sticking to the agreed course and policies," Rehn said. "It should be clear in Athens that solidarity is a two-way street and we expect a united political class to carry out its part of responsibilities."
Earlier in the day, a senior Greek government official said Greece's eurozone partners had demanded even more during their meeting in Brussels on Monday -- that Papandreou and Samaras, the Bank of Greece governor, the new prime minister and the new finance minister all co-sign a letter reaffirming their commitment to the country's bailout deals and economic reforms.
Samaras appeared to take offence.
"There is national dignity," he said in a statement. "I have long and repeatedly explained why, in order to protect the Greek economy and the euro, the implementation of the (new European debt deal) has become 'inevitable'. I do not allow anyone to cast doubt on these statements."
Without the Oct. 27 deal, which took European leaders months to work out, Greece would go bankrupt, potentially wrecking Europe's banking system and sending the global economy back into recession.
"I believe that we are now close to an agreement," Papandreou said during a Cabinet meeting Tuesday afternoon.
"When one co-operates with another party, there are some red lines on either side which of course restrict things," he said. "Therefore, while one could imagine ideal situations, in reality these do not exist, and one seeks simply to find the best possible solution."
Greece has survived since May 2010 on a C110 billion ($150 billion) bailout package from its eurozone partners and the International Monetary Fund. A second rescue package has been created that involves private bondholders voluntarily agreeing to cancel 50 per cent of their Greek debt.
In return for the rescue funds, Greece has endured 20 months of punishing austerity measures. 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.
