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Will Greece's political crisis endanger the eurozone debt deal?

By Nick Thompson, CNN
updated 8:04 AM EST, Mon November 28, 2011
STORY HIGHLIGHTS
  • NEW: New prime minister to be announced Tuesday
  • George Papandreou to resign after new coalition government is formed
  • New elections in the debt-ridden country may not take place until mid-February
  • Failure to approve the deal could result in Greek bankruptcy and possible exit from the euro

(CNN) -- Greek Prime Minister George Papandreou's announcement that he will resign and form a new government raises a new set of questions for the debt-ridden country.

Why is Papandreou resigning?

Papandreou has long been criticized in Greece for his handling of the country's financial crisis, and his call last week for a referendum on the eurozone debt deal was the beginning of the end for his premiership.

The fallout over the announcement kick-started a series of events that undermined confidence in Papandreou and led him to announce Sunday he would resign after a new coalition government is formed.

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What did the proposed referendum mean?

Papandreou's announcement of a referendum on the eurozone debt deal was controversial because of its timing and because of the possible consequences.

Europe had just breathed a collective sigh of relief after the new deal -- which would wipe out €100 billion euros in Greek debt, half of what it owes to private creditors, recapitalize Europe's banks and bolster its bailout fund -- was agreed to in a late October summit in Brussels.

But less than a week later, without first consulting his Europen counterparts, Papandreou called for a national referendum to approve the eurozone deal -- infuriating his counterparts, who had assumed Greek approval was a foregone conclusion, and jeopardizing an €8 billion payment due in December from the EU and International Monetary Fund that Greece needs to avoid bankruptcy.

Most Greek voters disapprove of the new deal, which is tied to additional austerity measures such as slashing government jobs, privatizing some businesses and reducing pensions.

A "no" vote would likely have led to Greece going bankrupt and possibly leaving the eurozone -- not to mention wreaking havoc on the German and French economies.

After intense pressure from other European leaders, calls from the opposition for him to resign and defections from his own PASOK party, Papandreou backed off his call for a referendum late last week.

What happens now?

Greece has to form a new government, approve the new bailout deal to avoid bankruptcy, and schedule new elections.

A replacement for Papandreou will be announced Tuesday, a government spokesman said.

The meeting comes a day after President Karolos Papoulias announced that Papandreou will step down, provided that the controversial bailout deal is approved.

What does the process look like?

After the nominee is announced, he or she must be approved by the Greek president and then by Papandreou's ruling PASOK party.

The new prime minister will then have to cobble together a coalition "caretaker" government to manage the country's affairs until elections are held within the next few months.

Who will be Greece's next prime minister?

Whoever that person may be, he or she won't have been democratically elected by the Greek people, so the prime minister will essentially be a "caretaker" who will guide the country to new elections within the next several months.

CNN's Jim Boulden said one idea under discussion has been the appointment of an "elder statesman" who could operate above the fray of party politics.

One possible candidate may be Harvard professor and Greek economist Lucas Papademos, a former deputy president of the European Central Bank who was the governor of the Bank of Greece when the country joined the euro in 2001.

Other candidates for the prime minister's job include Petros Moliviatis and Loukas Papaimos, according to Greek television.

Finance Minister Evangelos Venizelos is likely to remain in his post as finance minister in a new government, sources say, as European leaders will be reluctant to deal with a new point man in future Greece-related euro issues.

What must the next prime minister do?

As the head of what will basically be an interim government, Greece's next prime minister will have two primary responsibilities -- ensuring Greek politicians approve the new bailout deal, and calling new elections within months.

Provisions of the deal need to be approved by a 60% super-majority of lawmakers in Greek parliament -- a number that the current government lacks but that the new coalition government will have, says RBS analyst Silvio Peruzzo.

"It's a very tough decision to condemn the country to ten years of austerity if it's a decision that's not shared by a broad representation of the population," Peruzzo told CNN.

The individual austerity measures from the eurozone debt deal could take months to pass in Greek parliament, and new elections aren't expected in Greece until mid-February, according to Boulden.

But with an €8 billion tranche of bailout money due to be paid to Greece in mid-December, the caretaker prime minister must also persuade the troika of Greek lenders -- the European Commission, European Central Bank and IMF -- that the country is on the right track in order to get the funds.

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