Greek Prime Minister Vows to Stay Despite Political Turmoil

ATHENS, Greece -- Prime Minister George Papandreou vowed Thursday to stay on and fight to pull his country out of a crippling debt crisis, facing down a revolt from within his governing Socialists over widely unpopular new austerity measures.

Greece has been gripped by a major political crisis over a new five-year package of austerity measures demanded by creditors. The political turmoil reached such a crescendo Thursday that it spooked markets and forced a top European Union official to say Athens would receive enough rescue loans to avoid a summer default.

Talks to form a Greek coalition government with rival Conservatives collapsed Wednesday, and the country's political crisis deepened Thursday as Papandreou saw two of his Socialist lawmakers resign.

The party feud was the latest crisis to heighten worldwide concern that a Greek financial collapse could trigger panic elsewhere in the 17-nation eurozone -- a fear that saw borrowing costs in vulnerable EU countries surge and stock markets come under pressure.

"We will prevail and we will hold on. We have as a country in the past successfully faced major crisese. As hard at this struggle is, we cannot run away from our fight," Papandreou told party lawmakers in an emergency meeting Thursday in Parliament. "We will fight and we will win, for Greece, its people and the future of the new generations."

The prime minister said he would keep seeking a consensus with the opposition over the financial reforms that creditors have demanded as part of an international bailout.

"I will serve and continue to serve the effort for broader consensus and we hope that this effort ultimately is successful," he said. "But I have learned to battle on my own."

He also admitted his government had displayed "mistakes and weaknesses," but promised a new, stronger Cabinet in a reshuffle expected to be announced later Thursday.

Papandreou is trying to push through a five-year austerity program worth $39.5 billion that has been demanded by international creditors. The new spending cuts and taxes have spurred violent street protests as well as the party rebellion.

In Brussels, top EU finance official Olli Rehn said eurozone ministers would likely agree Sunday to give Greece the next $17 billion installment of loans from the $155 billion bailout package.

"It means that the funding of the Greek sovereign debt can now be ensured until September," Rehn said, adding that a decision on a second bailout to cover Greek financing gaps next year is still pending.

"The next days will be critical for the financial stability and economic recovery in Greece and Europe," Rehn warned. "I trust all leaders in Greece and Europe realize their responsibility and will act accordingly."

Papandreou also repeated criticism of how the Greek debt crisis has been handled within Europe.

"There is a cacophony in the European Union, an unease, difficulties and mistakes -- yes, mistakes -- in the EU in the way this crisis was handled," he said.

The Greek prime minister spoke by phone earlier in the day with German Chancellor Angela Merkel to discuss negotiations over the second bailout for Greece.