–Story originally transmitted Thursday at 14:06 ET

ATHENS/PARIS (MNI) – For the second time in two days, Greece’s
Prime Minister George Papandreou has announced he will not resign but
will instead form a new government from within his ruling Socialist
Party.

Addressing the members of Parliament from his own party, who have
become increasingly fractious in recent days, Papandreou struck a
combative tone, touting his own accomplishments and taking the European
Union to task for responding too late to the Greek crisis and for
failing so far to agree on a new bailout package for the debt-choked
Eurozone state, which would supplement the E110 billion three-year loan
deal that was put in place over a year ago.

“The EU must find the correct solution for Greece,” Papandreou
said. He said the country was living in “dramatic times” and “we need a
solution fast.”

Eurozone finance ministers are at an impasse over a new bailout
package for Greece, estimated at around E90 billion, because of a
disagreement between Germany and the European Central Bank over how to
get private sector creditors to contribute to the new aid package.

Hopes that the Eurogroup would agree on a new bailout at its
upcoming meeting on June 19-20 faded today when Olli Rehn, the EU’s
Economic and Monetary Affairs Commissioner, said that details of a new
bailout plan for Greece would not be decided until the group’s July 11
meeting.

However, Rehn said he was “confident” the Eurogroup would decide at
the June meeting to disburse a E12 tranche from the existing bailout
package, thus buying time for Greece until the new bailout plan can be
agreed. As Rehn noted, the decision on releasing the E12 billion would
need the agreement of the International Monetary Fund, whose share of it
is E3.3 billion.

Later in the day, the IMF released a statement saying, “We
anticipate a positive outcome on this at the next Eurogroup meeting.”
However, it added that its continuing support for Greece was “subject to
adoption of the economic policy reforms agreed with the Greek
authorities.”

With the rapidly disintegrating political situation in Greece, that
is becoming a key sticking point. Tens of thousands of Athenians have
been marching in the streets to protest the proposed new austerity
measures as well as the E50 billion privatization plan that is also
considered a key condition of any new aid to Greece.

Three members of Papandreou’s party bolted this week over the
planned new austerity measures, leaving his already tenuous majority
hanging by a thread. One of the members defected to become an
independent, and two resigned their seats. The two who resigned will be
replaced by members of Papandreou’s party, but even counting those
seats, Papandreou only holds a majority of four seats — and according
to Greek media reports at least ten are considering abandoning him.

Indeed, Papandreou’s speech to his own party tonight was an effort
to salvage his premiership in the hope of getting the new plan through
Parliament. He urged party unity and also national unity, saying he
would continue to seek a “broader consensus,” even though talks for a
national unity coalition government had ended in acrimony just 24 hours
earlier.

The prime minister not only blamed the opposition, but also sought
to shift some of the blame to the EU for its failure to take the bold
action demanded by the situation. “If the EU does not make history,
history will bypass the EU,” he said.

Antonis Samaras, the head of the leading opposition party New
Democracy, also addressed the MPs from his party this evening, and took
the opportunity to slam Papandreou and renew his call for early
elections.

“The government continues to follow the same failed economic
policy,” he asserted, observing that the country’s public deficit
remained stuck at 10% of GDP despite the budget-cutting measures, which
he said had only deepened the recession. The deeper recession, he added,
would only exacerbate the country’s debt and deficit problems.

Samaras renewed his call for Greece to renegotiate the terms of its
existing bailout package with the IMF and its Eurozone partners.
Renegotiating those policies that are ineffective or counterproductive
is “necessary and realistic,” he said, arguing that while Portugal and
Ireland “negotiated” their packages, Greece’s was essentially imposed on
it.

Samaras’ New Democracy Party leads Papandreou’s Socialists in the
most recent opinion poll, published Sunday, and he could very well be
the next prime minister if an early election is called.

That will largely depend on whether Papandreou can keep control of
his increasingly disaffected party. The meeting with his party’s MPs
earlier this afternoon was demanded by them in a letter they had sent
him earlier in the day. They requested that he make no decision on a new
government until giving them a chance to weigh in.

After Papandreou spoke, fifty-seven members of the party signed up
to address the meeting. They are still talking at this moment and are
expected to go very late into the night.

After that, either in the wee hours of the morning or sometime
tomorrow, perhaps, Papandreou could announce his new government and seek
a vote of confidence — unless he determines he does not have sufficient
support anymore within the party.

Many of his MPs sat silently and did not applaud as he spoke, even
at some of his strongest lines, which indicates that the potential for
defections is high.

According to MPs who have been talking to journalists on the
sidelines of tonight’s meeting, many of them will wait to see the
composition of the new government before deciding whether to support
Papandreou, or to resign from Parliament, or to leave the party and vote
against the E28 billion austerity plan.

Things are changing by the hour, and nobody seems to know what is
going to happen.

It is widely believed and reported in Greek media that the most
prominent victim of Papandreou’s promised reshuffle will be Finance
Minister George Papaconstantinou, who is hugely unpopular — no doubt
because his primary job is to impose the hated austerity plan. According
to local media reports, and not surprisingly, Papandreou is having a
difficult time finding somebody who is willing to replace him.

–Angelika Papamiltiadou, a_papamiltiadou@marketnews.com
–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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