Greek government teeters, lawmakers urge PM to resign

ATHENS, Greece (AP) -- Demands mounted Thursday for Greek Prime Minister George Papandreou to resign and let a coalition government approve a European bailout plan instead of holding a risky referendum on it.

Papandreou's proposal earlier this week to put the hard-fought bailout package to a referendum horrified Greece's international partners and creditors, triggering turmoil in financial markets as investors fretted over the prospect of a disorderly default and the country's exit from the 17-nation eurozone.

The instability in Greece sent immediate ripples throughout Europe. Premier Silvio Berlusconi's government in Italy was teetering as well 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.

European Central Bank made a surprise decision Thursday to cut interest rates by a quarter of a percentage point to 1.25 percent, responding to the financial turmoil.

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

Papandreou was holding an emergency meeting Thursday with his ministers. Several of them called for a coalition national unity government that would approve the bailout package without a referendum and make sure the country receives vital funds to prevent imminent bankruptcy.

Rumors abounded about a possible Papandreou resignation _ but two officials in his office denied reports that he would visit the country's president and tender his resignation in the afternoon. The president's office also said it had no knowledge of such a meeting.

Several of Papandreou's close associates said they did not know what his intentions were, but he was delivering a speech to his ministers.

``He wrote the speech himself. Nobody knows what's in it,'' said one close associate who spoke on condition of anonymity to discuss the prime minister's actions.

Antonis Samaras, the leader of the main opposition party, called for a transitional government to ratify the European debt deal and prepare for early elections.

``Under the weight of these dramatic events, we have witnessed a crisis of the ability to govern. The country must immediately return to a state of normality,'' Samaras said. ``Under the current conditions, the new debt deal is unavoidable and must be safeguarded.''

State TV said lawmakers were sounding out former European Central Bank vice president Lucas Papademos as a possible unity government leader.

If the Greek government did fall, it would mean that every EU nation that had already received a bailout _ Greece, Portugal and Ireland _ saw their governments fall during the economic turmoil.

Earlier Thursday, Papandreou's own finance minister, Evangelos Venizelos, broke ranks with him and declared his opposition to a referendum.

``Greece's position within the euro area is a historic conquest of the country that cannot be put in doubt,'' Venizelos said, adding that it ``cannot depend on a referendum.''

Venizelos said the country's attention should be focused on quickly getting a crucial (euro) 8 billion ($11 billion) installment of bailout funds, without which it faces bankruptcy with weeks.

``What matters now, is that we must save what we can, to remain united,'' Health Minister Andreas Loverdos said as he arrived for the cabinet meeting. ``We must keep the country at a position it reached after half a century of sacrifice _ in the European Union and the eurozone.''

Development Minister Michalis Chrisohoidis called for unity and said the priority was for parliament to ratify the new debt deal. ``There can be no ... return to the drachma and the past,'' Chrisohoidis said.

The strong Greek rejection of Papandreou's referendum proposal helped calm frayed nerves in the markets. Athens' main stock market outperformed its peers, rising 4 percent in midday trading following three days of big falls.

In Cannes, French President Nicolas Sarkozy and German Chancellor Angela Merkel told Papandreou on Wednesday night that any referendum should be on whether Greece wants to stay in the eurozone or not, suggesting that it be held no later than Dec. 4. They said the country would not get the next (euro) 8 billion ($11 billion) batch of its existing bailout until after the vote.

But delaying payment until then could be disastrous: Greece has said that without the funds, the country will run out of funds in mid-November.

Papandreou had called a confidence vote in his government Friday, but it was unclear whether it could survive that long. Socialist lawmaker Eva Kaili said she would not back the government in the vote. Without her support, the Socialists hold a single seat majority in the 300-member parliament.

Greece's new debt deal would give Greece an extra (euro) 100 billion ($138 billion) in rescue loans from the rest of the eurozone and the IMF _ on top of the (euro) 110 billion it was granted a year ago _ and would see banks forgive Athens 50 percent of the money it still owes them.

Speaking in Cannes, Papandreou said he was forced to call the referendum after it became clear there was no ``broad support'' from opposition parties for the bailout deal reached with the rest of the eurozone and big banks just a week ago.

Turning the referendum into a popular vote on whether Greece wants to remain in the eurozone is a risky bet that could lead to turmoil throughout the bloc.

``We cannot permanently ride a rollercoaster on Greece; we have to know where things are going, and the Greeks have to tell us where they would like things to go,'' Jean-Claude Juncker, the Luxembourg prime minister who chairs eurozone finance ministers' meetings, told Germany's ZDF television Thursday.