* Papandreou agrees to go, drop referendum, for unity
* Opposition accepts bailout deal, offers transition govt
* G20 weighs more resources for IMF
* Merkel, Sarkozy tell Greece time to decide on euro future
* Obama, Hu, Medvedev urge Europe to act on crisis
By Dina Kyriakidou and Abhijit Neogy
ATHENS/CANNES, France, Nov 3 Intense European
pressure forced debt-stricken Greece to seek political consensus
on a new bailout plan instead of holding a referendum after EU
leaders raised the prospect of a Greek exit from the euro to
preserve the single currency.
Fast-moving events in Athens overshadowed the first day of a
summit of the Group of 20 major economies on the French Riviera
on Thursday, with anxious world leaders urging Europe to act to
stop contagion from its sovereign debt crisis.
Greek Prime Minister George Papandreou bowed to cabinet
rebels and agreed to step down and make way for a negotiated
coalition government if his Socialists back him in a confidence
vote on Friday, government sources told Reuters.
"He was told that he must leave calmly in order to save his
(PASOK) party," one source said on condition of anonymity. "He
agreed to step down. It was very civilised, with no acrimony."
Papandreou, son and grandson of left-wing prime ministers,
hinted he was ready to quit for the sake of national unity,
telling parliament he was not wedded to his job.
G20 leaders meeting in Cannes discussed increasing the
International Monetary Fund's resources and building a financial
firewall to protect vulnerable euro zone economies Italy and
Spain from a possible Greek default.
Papandreou said his call this week for a referendum, which
sparked panic on global financial markets and infuriated
European partners, "was never a purpose in itself", and he would
be happy if the vote were not held.
Papandreou told PASOK lawmakers he had agreed to talks with
the centre-right opposition on a transitional government to
implement a new EU/IMF bailout programme agreed last week, and
pave the way for early elections.
At a bruising meeting in Cannes on Wednesday night, French
President Nicolas Sarkozy and German Chancellor Angela Merkel
warned him that Athens would not receive a cent more in aid
until it met its commitments to the euro zone.
Greece was due to get a vital 8 billion euro instalment this
month and says it will run out of money in mid-December if it
does not get the loan.
Despite the turmoil in Athens and uncertainty over the euro
zone, European stock markets and the euro rallied in
volatile trading as the likelihood grew that Greece would not
hold the highly risky referendum.
The European Central Bank also provided a surprise boost by
cutting interest rates by 25 points to 1.25 percent and saying
its policy of buying euro zone government bonds would continue
for now with limited scope to support its monetary policy.
The leaders of China, Russia and the United States pressed
the Europeans to move more swiftly to contain the debt crisis,
with Washington urging Germany to relent and let the ECB play a
greater role in financial firefighting, G20 sources said.
"Europe should aid itself. The European Union has everything
for that today -- the political authority, the financial
resources and the backing of many countries," Russian President
Dmitry Medvedev said.
Canadian Prime Minister Stephen Harper said the leaders had
discussed contingency plans if Greece were to leave the euro
zone, "but my expectation is that cooler heads will prevail and
the package will be accepted (by Greece)".
Italy was next in the euro zone firing line, facing fierce
pressure to make good on long delayed economic reforms.
European G20 leaders along with U.S. President Barack Obama,
IMF Managing Director Christine Lagarde and new ECB President
Mario Draghi met on the sidelines to press Italian Prime
Minister Silvio Berlusconi for a timetable for key labour
market, pension and privatisation measures, EU sources said.
Berlusconi failed to win agreement from his divided
centre-right cabinet for the reforms just before flying to
A draft plan agreed with the G20 on Thursday includes a
commitment by Italy to get its budget deficit "near balance" by
2013 and to rapidly reduce its debt-to-GDP ratio, sources told
Reuters. That is less ambitious than Italy's promise only last
month to balance its budget in 2013.
EU leaders are concerned that if Italy cannot get its
finances in order, the economy -- the eurozone's third largest
-- could go the way of Greece, Ireland and Portugal in needing a
bailout from the EU.
In Athens, Finance Minister Evangelos Venizelos led the
revolt against Papandreou, saying Greece's euro membership was a
historic achievement and "cannot depend on a referendum".
Dissident PASOK lawmakers called for a temporary national
unity government, which some suggested could be led by former
ECB vice-president Lucas Papademos.
Signalling for the first time a will to compromise,
opposition leader Antonis Samaras called for a transitional
government to lead Greece to early elections within weeks and
said parliament should first ratify last week's 130 billion euro
($178 billion) bailout deal.
European Union leaders have long called for national unity
in support of painful austerity measures required to cut the
country's crippling debt, expected to reach 160 percent of gross
domestic product this year.
Sarkozy told a news conference the tough message delivered
by France and Germany to Greece's political class was starting
to bear fruit. "Things are progressing," he said, welcoming
Samaras' support for the bailout plan.
Euro area leaders talked openly of a possible Greek exit
from the 17-nation currency area, seeking to maximise pressure
on Athens and preserve the euro in case of a "no" vote.
Merkel repeated that the stability of the euro had priority
for Germany over Greece's euro membership, touching a popular
nerve at home.
Germany's best selling Bild newspaper railed against Greece
and demanded it be ejected from the euro. A telephone poll found
86 percent of Germans want Greece out of the currency.
The chairman of euro zone finance ministers, Luxembourg
Prime Minister Jean-Claude Juncker, said policymakers were
working on possible scenarios for a Greek exit.
The spectre of a possible hard Greek default and euro exit
hung over the G20 summit, highlighting Europe's frailty and
divisions just when Sarkozy had hoped to showcase his leadership
of the world's major economies.
The summit had been meant to focus on reforms of the global
monetary system and steps to rein in speculative capital flows
and regulate commodities markets, but the shockwaves from Greece
upended the talks.
Obama said Europe had taken some important steps towards a
comprehensive solution to its debt crisis but now needed to
flesh out and implement the plan quickly.
A disorderly Greek default would reverberate across the euro
zone, engulfing big economies like Italy and Spain, and
potentially plunging the global economy into a recession.
Euro zone finance ministers are working to accelerate
implementation of an anti-crisis package agreed on Oct. 27.
That plan, which includes debt relief for Greece, a
recapitalisation of European banks and a leveraging of the
bloc's rescue fund, was meant to stem the two-year old crisis
before Papandreou's referendum call cast the bloc into turmoil.
Officials said the meeting focused on speeding up the
creation of a firewall to protect other vulnerable euro zone
states from the fallout from Greece.
The risk premium on Italian bonds over safe-haven German
Bunds has hit euro-lifetime highs this week, despite European
Central Bank buying of its bonds. Spain had to pay its highest
yield since 2008 at a bond auction on Thursday.
The G20 is considering an IMF proposal to create a new
short-term line of credit to help countries that are facing
economic shocks beyond their control, a G20 official familiar
with the talks said.
British finance minister George Osborne said leaders
discussed increasing the global lender's resources, which China
strongly backed, and he had heard no dissenting voices.