Greek PM scraps referendum amid calls to resign

Updated at 3:41 p.m. ET

ATHENS, Greece - Greece's prime minister abandoned his explosive plan to put a European rescue deal to popular vote Thursday, keeping his government alive — but passionate squabbling in Athens left the country's solvency in doubt and the eurozone in turmoil.

Prime Minister George Papandreou reversed course after a rebellion within his own Socialist party over the referendum, but ignored repeated calls to resign and call elections.

Chaos persisted in the country that coined the term: Papandreou faces a critical vote of confidence in his government Friday as the Socialist rebellion still simmers. And the main opposition conservatives were not placated, insisting on his resignation.

Meanwhile, Greece's cost of borrowing ballooned, with the interest demanded by markets to buy Greek 10-year bonds exceeding 31 percent — compared to 2 percent for European powerhouse Germany.

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Papandreou sparked a global crisis Monday when he announced he would put the latest European deal to cut Greece's massive debts — a hard-fought accord that took months of negotiations — to a referendum. The idea horrified other EU nations, Greece's creditors and financial markets as investors fretted over the prospect of Greece being forced into a disorderly default.

Papandreou was summoned to an emergency European meeting in Cannes, France, on Wednesday night, where the visibly irate French and German leaders said any referendum would in fact be a question of whether Greece retains its cherished membership of the 17-nation euro common currency. They also put on hold the next, vital payout of Greece's existing bailout until after a vote was held.

A Greek Finance Ministry official told the AP that Greece has cash until mid-December. After that, without the euro8 billion ($11 billion) disbursement, Greece would most likely be unable to service its debt or pay pensions and salaries.

Finance Minister Evangelos Venizelos accompanied Papandreou to the Riviera but led a revolt against the referendum idea on his return to Athens before dawn Thursday.

With Greece's euro membership and bailout loan lifeline suddenly in danger, pressure mounted for Papandreou to resign. The conservative opposition and even his own deputies called for the creation of a transition government to pass the new European debt deal.

Venizelos said, as the opposition now indicated it would support the European debt deal, a referendum was no longer necessary.

"The government went to Cannes with the position that if the necessary consensus is formed there will be no need to hold a referendum," he said. "We must highlight the fact that there is a window of a consensus."

He said the new debt deal would be brought to parliament under a procedure that would require a reinforced majority of 180 out of the 300 lawmakers to vote in favor. With the governing Socialists holding 152 seats, that means the debt deal will only pass if the opposition also votes in favor.

But conservative opposition leader Antonis Samaras quickly dispelled any impression of unity, arguing that he had already agreed to back the vital deal, and demanded elections — within the next six weeks if possible.

Papandreou "nearly pulled the universe apart to supposedly persuade me to agree to something that I had already said was unavoidable," he told parliament later Thursday, during a debate on the upcoming confidence vote.

"Mr. Papandreou pretends that he didn't understand what I told him," he said. "I called on him to resign."

Samaras then led his lawmakers in a dramatic walkout of the debate, without indicating whether he would vote in favor of the deal.

The drama in Greece sent immediate ripples throughout Europe. Premier Silvio Berlusconi's government in Italy was teetering as well Thursday after it failed to come up with a credible plan to deal with its dangerously high debts, and Portugal demanded more flexible terms for its own bailout. The European Central Bank made a surprise decision to cut interest rates by a quarter of a percentage point, to 1.25 percent, in an acknowledgment of the fragility of the continent's finances.

Talk of Greece also dominated the G-20 summit in the French resort of Cannes, where the leaders of the world's economic powerhouses gathered to solve Europe's debt crisis, which threatens to push the world back into recession.

During a summit break, French President Nicolas Sarkozy praised the Greek opposition's backing for the debt-crippled country's new bailout as "courageous and responsible."

Greece's new debt deal would give the country an extra euro130 billion ($179 billion) in rescue loans from the rest of the eurozone and the International Monetary Fund — on top of the euro110 billion ($152 billion) it was granted a year ago. It would also see banks forgive Athens 50 percent of the money it still owes them. The goal is to reduce Greece's massive debts to the point where the country is able to handle its finances without constant bailouts.

Underlining that point, 300 people held a peaceful anti-austerity protest in central Athens late Thursday

The political drama continues Friday, when parliament will hold a confidence vote on the government. Papandreou's majority has been reduced to the bare minimum 151 after Socialist lawmaker Eva Kaili said she would not vote in favor.

"Tomorrow's vote is of particular significance, for the confidence vote provides a guarantee of how we will make our new steps ... and how we will talk with the opposition parties," Papandreou said.

The omens are poor: The two other European governments besides Greece that have received bailouts — Portugal and Ireland — have seen their governments fall during the economic turmoil.