Greek leaders strain to agree Papademos-led coalition (Reuters)

ATHENS (Reuters) ? Greek party leaders labored on Tuesday to agree on a new unity coalition led by a former central banker, with the rest of the nation and the EU clamoring for an immediate deal to save the country's finances and end the chaos threatening the euro.

Sources at both the socialist and conservative parties said negotiations on getting former European Central Bank vice President Lucas Papademos to head the interim government were being concluded, although details still had to be ironed out.

A snag appeared late in the day, when opposition leader Antonis Samaras appeared to reject EU demands to sign an undertaking that Greece will back a bailout package, the country's second since last year, and the austerity it requires.

After early signs that a coalition could be formed quickly, momentum seemed to be lost in the drive by the socialist and conservative parties to create a government that will rule only three months.

The socialist party source insisted progress was being made on the "100-day government," which must push the 130 billion-euro ($180 billion) bailout through parliament before calling elections in February.

"Negotiations are being finalized with Papademos as PM," the party source, with knowledge of the talks, told Reuters. "They are going through the final details."

PROBLEMS EMERGE

However, problems emerged over the demand for written undertakings made by European Economic and Monetary Affairs Commissioner Olli Rehn, exasperated by Greece's record of making promises to the EU and IMF on tackling its huge debt and budget deficit and then falling short of fulfilling them.

Papandreou caused chaos last week by calling a referendum on the bailout, a vote which might have seen Greeks reject the package because of the austerity measures tied to it. Papandreou backed down, but was forced into agreeing to make way for the unity coalition.

Rehn said after a meeting of euro zone finance ministers that Greece had breached confidence with the EU by calling the referendum. Now Brussels needed undertakings to release even the next 8 billion-euro instalment of funding for Greece under its original bailout package, pulled together last year.

"This confidence needs to be mended," said Rehn. "Finance ministers of the euro area expect that there is ... a written commitment, a written confirmation of the commitment of a broad-based government of national unity."

A government source said the EU wanted Samaras to sign, along with the new prime minister, finance minister, central bank governor and outgoing Prime Minister George Papandreou.

Rehn drew a tart response from Samaras, amid unrest in his New Democracy party.

Samaras, who has long opposed austerity measures demanded by the EU and IMF, hinted in a statement that he might not give any written assurances because his spoken word was enough.

"It's a matter of national dignity ... I don't allow anybody to doubt my statements," said Samaras.

New Democracy believes the spending cuts, tax rises and job losses imposed by the outgoing socialist government have deepened Greece's crippling recession, now in its fourth year.

Party sources said some leading members were furious that Samaras had staged a U-turn last week, saying he would back the latest bailout after all.

EURO ENTRY

There was no word on whether Papademos, a Greek economist who is well known in European capitals, would accept the job.

As national central bank governor, Papademos oversaw Greece's entry into the euro zone in 2002. Its current chaos has cast doubt over whether that membership will continue.

Papandreou told his cabinet he hoped to have the name of a new prime minister by Tuesday night, a government source said.

"A national unity government, right now," Ethnos daily said on its front page. "The country and society cannot endure this any more."

European Union politicians expressed their alarm in Brussels about how debt crises in Greece and Italy are shaking international confidence.

"Europe is running dry on credibility and a solution to a high debt crisis must be lower debt. The responsibility for that falls with the country with high debt and that is obviously Greece and Italy," Swedish Finance Minister Anders Borg said.

If Greece pushes through its euro zone bailout, it will indeed lower its debt but not only by exercising budget discipline: the bailout envisages a bond swap which will halve the value of banks' holdings of Greek government debt.

Ordinary Greeks also demanded a new government, replacing a socialist administration which descended into chaos.

"If this government doesn't work out, we are lost," said Panagiotis Dimitriadis, 80, a public sector pensioner.

Dimitriadis had his pension cut when the outgoing government imposed austerity demanded by international lenders, but is still trying to help out his son and seven grandchildren.

Papandreou and Samaras agreed on Sunday the coalition should be formed, but little else.

The stakes could not be higher. Greece faces bankruptcy in December when big debt repayments are due, unless it can get hold of more emergency funding soon.

For two years the EU has labored to solve the problems of Greece, a very small part of the bloc's economy, leading to doubts about how it would manage if the debt crisis engulfed the far bigger Italian or Spanish economies.

(Additional reporting by Dina Kyriakidou, George Georgiopoulos, Harry Papachristou, Tatiana Fragou and Angeliki Koutantou in Athens; Juliane von Reppert-Bismarck in Brussels; Paul Taylor in Paris; Writing by David Stamp; Editing by Andrew Roche)

Source: http://us.rd.yahoo.com/dailynews/rss/world/*http%3A//news.yahoo.com/s/nm/20111108/wl_nm/us_greece

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