Papandreou backs down on vote for Greece's bailout deal

ATHENS, Greece -- Under international pressure, Greece's prime minister Thursday gave up his plan for a nationwide vote on a bailout deal for his debt-ridden country that European leaders fretted would cause a financial meltdown.

However, Greek Prime Minister George Papandreou also forced his political foes to back down on their opposition to the spending cuts and tax hikes that come with the bailout funded largely by Germany and other European nations.

"We had a dilemma: consensus or a referendum," he said following meetings with his Cabinet on Thursday. "Failure to back the package would mean the beginning of our departure from the euro. But if we have consensus, then we don't need a referendum."

Leaders of the European Union said they were shocked when Papandreou announced he would put the latest European deal to cut Greece's massive debts to a referendum just days after he had agreed to a deal following lengthy negotiations in Brussels, headquarters of the EU.

Polls indicate the bailout is unpopular in Greece, where in return for $180 billion in assistance Greece debt-holders must agree to take 50% less than they are owed. The deal also forces Greece to cut thousands of state jobs and raise taxes to help make up for its budget deficit, and it expands the power of EU inspectors overlooking its finances.

If the deal was voted down, Greece may have been forced out of the 17-nation bloc that uses the euro and may have then defaulted on all its debts, triggering significant losses to European banks and investors that bought Greek bonds.

Greek analysts say their politicians have deepened the mess.

"The EU had agreed on the rescue measures and decided to help Greece, there was no reason for proposing this (referendum), it was crazy," said Timos Melissaris, an economist in Athens. "The worst part was that the EU leaders weren't told in advance."

Melissaris sais Papandreou was hoping to have voters share responsibility for the dire situation by calling a referendum.

"Certainly a referendum is appropriate for a democracy but for some point later on," he said. "Now, we should move forward but what is needed is agreement with the people, not this conflict we have been having. People are not happy with all the politics or the politicians."

Ordinary Greeks complain that even if the bailout comes through it is really only going to help banks and politicians, not them. Nothing in the bailout package is going to improve the awful economy in Greece, where unemployment is at 16%.

"Our sales have gone down," said Meri Tsalikidi, 52, owner of a solar water heater business that employees one more person. "If people don't have money, they won't spend. Food and children's clothes have priority right now."

State workers were prepared to hold another in a string of anti-austerity protests outside parliament on Thursday. Such protests have paralyzed Athens in the past. The main union in Greece said worker pay has been reduced by more than 20%.

The combination of the economic crisis with the extra taxes imposed on business owners has knelt down even those that were doing well before the crisis.

"We're going crazy" Tsalikidi said. "This year we had to pay more than ($27,000) in taxes, even if we made no sales."

The political chaos was not over yet in Greece. A vote of confidence in the Greece government was set for Friday. If the ruling socialists are defeated, President Karolos Papoulias would then try to help form a new government under a new prime minister or invite opposition parties to form a government.

The main opposition New Democracy party had been on record opposing the spending cuts that are part of the bailout and had been criticizing the government for agreeing to them in Brussels. But Papandreou said the party agreed to support the bailout in full.