Greece's embattled prime minister and main opposition leader have agreed to form an interim government to ensure the country's new European debt deal, capping a week of political turmoil that saw Greece face a catastrophic default that threatened its euro membership and rocked international markets.

As part of the deal, prime minister George Papandreou agreed to step down halfway through his four-year term.

He and conservative opposition head Antonis Samaras are to meet today to discuss who will become prime minister and the make-up of the Cabinet.

The new unity government's main task will be to pass the European rescue package, reached after marathon negotiations between European leaders barely a week ago - a move considered crucial to shoring up the euro.

The interim government will then lead the country into early elections, expected early next year.

Officials had been anxious to reach some form of agreement before a meeting of eurozone finance ministers in Brussels today.

"Of course it's a breakthrough," government spokesman Elias Mossialos said. "It is a historical day for Greece, we will have a coalition government very soon, early next week. The prime minister and the leader of the opposition will discuss tomorrow the name of the new prime minister and the names of ministers."

Mr Papandreou sparked the latest crisis by announcing last week that he was taking the hard-fought debt agreement to a referendum.

That outraged European leaders, who said such a vote could raise the spectre of Athens leaving the common currency - setting off an unpredictable chain reaction that could drag down other European countries.

They also warned a vote would jeopardise the disbursement of a vital eight billion euro instalment of Greece's existing 110 billion euro bailout, which the country desperately needs to avoid the potential of a catastrophic default within weeks.

In the ensuing market turmoil, Italy - which also faces severe financial difficulties, but is considered too big to bail out - saw its borrowing costs spiral, sparking fears it could be dragged into the fray.

Mr Papandreou withdrew the referendum plan on Thursday in the wake of European anger and after it sparked a rebellion among his own Socialist lawmakers, many of whom called for him to resign. The turmoil also pushed the conservative opposition party to publicly declare it would back the debt agreement.