Greek, Italian Leaders Under Pressure to Go

George Papandreou and Silvio Berlusconi are urged to resign by parliamentarians ahead of a G20 summit.

The Greek and Italian prime ministers were both under heavy pressure to resign on Thursday. The focus of Europe’s sovereign debt crisis has shifted to their countries with the perception lingering that they won’t be able to rein in public spending sufficiently in the short term to stave off a default.

After eurozone leaders agreed to expand the temporary European bailout fund at a summit last week and forgive 50 percent of Greek debt, Prime Minister George Papandreou called for a referendum on the rescue package to the dismay of other euro nations.

German chancellor Angela Merkel and French president Nicolas Sarkozy tried to convince Papandreou to scrap plans for a vote ahead of a G20 meeting in Cannes. Lawmakers in Athens made similar demands where there was speculation that Papandreou might resign.

The Greek finance minister, Evangelos Venizelos, notably broke ranks with Papandreou after convening with the French and German leaders who reportedly threatened that the country wouldn’t receive any European financial assistance before it agreed to the terms of last week’s accord.

Greece’s ruling socialist party is deeply unpopular as is the latest €130 billion bailout package yet a majority of Greeks want their country to remain part of the European currency union. The outcome of a referendum, therefore, is far from certain.

In Rome, half a dozen parliamentarians called on Prime Minister Silvio Berlusconi to quit as his unruly coalition has proven unable to implement the sort of austerity measures that are deemed necessary for Italy to regain fiscal balance.

Berlusconi’s political friends in the separatist Lega Nord publicly opposed far-reaching pension reforms that had been recommended by Italy’s European partners at the October summit. They previously blocked €4 billion in cuts to local governments that were part of an austerity package designed to rein in the pervasive Italian state.

The besieged Italian prime minister, who faces corruption charges and turmoil in his own conservative party, failed to win support at a cabinet meeting late Wednesday for a comprehensive reform effort that he had planned to take to the G20 meeting in the south of France. He did promise the other leaders in Cannes to call a confidence vote within two weeks on new measures to fight the economic calamity. Berlusconi barely survived a confidence vote in December when loyalists outnumbered the opposition by just three votes.

With Greece teetering on the brink of possibly leaving the euro, the future the single currency could depend on preventing a meltdown in Italy which threatens to overwhelm the bloc’s existing defense mechanisms. Italy’s public debt is equal to 120 percent of gross domestic product. Its $1.8 trillion economy is probably too big to bail out unless the European Central Bank would continue to finance Italian deficit spending for months if not years to come.

Update: Papandreou has scuttled plans for a referendum and agreed to form a caretaker government with the conservative opposition that will implement the austerity measures that are demanded by the latest European bailout agreement and schedule parliamentary elections. The prime minister’s immediate future is still in doubt as both conservatives and members of his own cabinet demand his resignation. A confidence vote is scheduled for Friday.