Prime Minister George Papandreou is to step down after reaching an agreement with opposition leader Antonis Samaras to form an interim government. The deal will ensure a new European debt deal for Greece before leading to early elections.
The announcement came after President Karolos Papoulias chaired crisis talks between the pair, capping a week of drama sparked by Mr Papandreou’s announcement he was taking the debt deal to a referendum.
He withdrew the plan on Thursday after intense opposition from European leaders and his own MPs.
The political turmoil had frayed nerves on international markets and seen Greece’s cherished membership of Europe’s joint currency come under threat.
Eurozone finance ministers are due to meet on Monday.