17.00: - Following a thoroughly confusing and rambling speech by Papandreou it seems that the referendum has been put on hold, for now (this was eventually confirmed by the Finance Minister Evangelos Venizelos). According to Papandreou the referendum was being considered because there was no clear consensus (in parliament or in the country) on whether to support the bailout package. Now that the opposition party the New Democracy has said it will support the deal (see below) he will put the referendum on the back burner and push ahead with finalising and implementing the deal.
- Not clear what format the government will take here, but we imagine New Democracy will not agree to the programme without some concessions. Another unity or cross party government could be on the cards then, with it be unlikely that Papandreou will be at the head of it. Ultimately, this will be decided by tomorrow's confidence vote.
- There were also some strange comments from Papandreou in general such as, "there was never any question on Greek membership of the euro", referendum has had a "beneficial shock" for Greece and that Greece is "bearing a cross and they are throwing stones at us" (not clear who they are exactly).
- Dutch Finance Minister for one (and us for two) was not convinced by the change of heart saying,“I have the experience with the Greeks that today is today and tomorrow is tomorrow.” So, we doubt this will be the end of the referendum talk or the speculation.
Open Europe take: Not Papandreou's finest moment, a terrible speech, lacked clarity and didn't tackle the key issues. It seems that the decision to call a referendum may have been a ploy to get the opposition to support the latest bailout package, although to some extent it did come across as the PM's last stand. In the end, avoiding the uncertainty of a referendum may be beneficial for Europe, despite the mess that has been created with its announcement. This has all be handled poorly by the Greek government and eurozone governments. Ultimately, Greece needs the next tranche of EU/IMF aid to survive through to end of December, as such avoiding a disorderly default may be the best outcome here. That doesn't change the fact that the bailout package is still flawed and does not solve the crisis.
14.45: Following a flurry of contradictory messages from Athens this morning and afternoon, it appears a (slightly) clearer picture is emerging. Papandreou has acknowledged that he won't be able force through the referendum, meaning it has been scrapped. The Guardian's live blog reports that some members of Papandreou's party are currently locked in negotiations with the New Democracy opposition over the creation of a Government of National Unity, also being dubbed a Salvation Government (this strikes us as somewhat hubristic). However, the vote of confidence scheduled for tomorrow is still due to take place (for now).
This is not only a big U-turn by Papandreou, but also by New Democracy's leader Antonis Samaras who has reportedly agreed to the details of the EU's bailout package; previously the party had argued in favour of securing a more favourable deal, with less focus on austerity.
13.30: - As it stands, BBC reports that Greek PM George Papandreou is currently speaking with the Greek President Karolos Papoulias and will offer his resignation in the immediate future (however there are still conflicting reports coming from ‘unnamed Greek sources’ suggesting this will not happen).
- Reports suggest that Papandreou’s government is too fractured to survive his resignation and as such the President will need to form a new government. This will likely be a cross-party transitional government, headed by former Greek Central Bank President Lucas Papademos.
- This government has the support of the leader of the opposition party New Democracy, Antonis Samaras, who earlier called for a unity government to be put in place. Samaras also stated that he would support this government approving the latest bailout package, despite previously suggesting he may look to renegotiate.
- After the latest package is approved, general elections will be held (quickest turn around would be 23 days after they are announced) leading to a possible New Democracy government. Questions still remain over the party’s long term commitment to enforcing more EU/IMF austerity. All this means, as of now, it looks very unlikely that there will be a referendum.
Open Europe take: Despite being all over the place, if this happens it could be a reasonably positive outcome. Still huge problems with current bailout plan and better options (proper involuntary debt restructuring) but of course still preferable to a disorderly Greek default and disorderly exit from the eurozone. That said, as we argued on the Today Programme this morning, EU leaders should promptly be planning for all eventualities and not living in denial any longer.