He won the 1999 elections with an overwhelming majority of 97%. Hs first term was marked by a bloody war against Bulgaria. Bulgaria, claiming Macedonia, invaded Greece in 2001. Greece responded with more than 300,000 troops. The Greek Army defeated the Bulgarian Army (239,000 troops) and invaded Bulgaria itself. The Bulgarian Government refused to make any peace treaty, even when the whole country had been occupied, and instead it started a guerrilla war against the Greeks.
Papandreou placed Boris Yalzovits as the new President of Bulgaria and signed a military alliance with Bulgaria, but the revolt continued. In 2003, a revolt overthrew the President and Greece had to send troops to restore him to power. Boris then declared martial law, making himnself dictator of Bulgaria.
The second term of Papandreou was marked by "Operation Samuel", which led to the death of the former Bulgarian President and Resistance fighter Samuel Kirijovitz in 2004. But instead of ending the resistance, this led to an increase in revolts. Greece had to keep more than 250,000 troops in Bulgaria, since if it left, President Boris would fall from power.
The situation became worse when Bulgarian troops massacred an entire village friendly to the Rebels in late 2004. In 2005, there was a vote in the UN condeming the Greek occupation of Bulgaria and declared President Boris to be a War Criminal.
USA, once the most friendly ally of Greece, turned against Greece and led a UN coalition of 32 Nations to free Bulgaria. More than 800,000 troops gathered in Romania and Greece had to leave Bulgaria in two weeks or face an invasion.
Papandreou refused and threatend that the war in Bulgaria would be the mother of all Battles. In 21 March 2005, the Coalition started an Air Campaign against Greece. Greece, having one of the most advanced Air Forces in the world was able to destroy 2/3 of the Coalition Air Force and so the Coalition was forced to invade Bulgaria. Seeing the detsruction of the Coalition Air Force, Serbia joined it's ally Greece and send more than 100,000 troops in Bulgaria.
The small Greek army of 250,000, along with 300,000 Bulgarian and 100,000 Serbian soldiers, fought a for more than a year a bloody stalemate that cost 77,000 Greek, 120,000 Bulgarian, 60,000 Serbians and 230,000 coalition lives. The coalition managed to break the stalemate when Commander George Bush decided to invade Greece itself with 120,000 troops.
Papandreou never expected that the coalition would invade Greece itslef, because the goal of the coalition was to force the Greeks out of Bulgaria and so he placed 9/10 of his army in Bulgaria. This would prove to be a disaster.
In 23 July 2006, Coalition forces in a suprise move took over Athens and invaded Greece itself. Papandreou had to send 70,000 troops to Greece to defeat the invaders. Serbia replaced the 70,000 troops by sending an army of 87,000 troops into Bulgaria, but the Serbian troops were not as well trained as the Greeks. So the Coalition managed to break the Allied lines and take over Sofia in 13 August.
At the same time, George Bush had defeated the Greek troops send against him and had managed to take over the whole of Central Greece. Soon the Coalition forces in Bulgaria invaded Macedonia and took it over and a force of 100,000 Coalition forces (mainly Italian and Albanians) used Alabnia as a base of operation to invade Serbia and Epirus.
Greece and Serbia were forced to sign a peace treaty. Although Serbia had to pay only 100 million dollars, Greece was forced to limit it's Air and Naval force to half it's size, allow the UN to establish military bases in Crete, the Agean Sea and Macedonia and Greece was forced to pay 700 million Dollars. Greece was bankraupted and from the world's third largest economy, it fell to the position of the world's seventh largest economy.
Papandreou gave the leadership of the Greek Rally Party to Andreas Loverdos in 2007. Andreas Loverdos lost the elections, however, to the newly created Party of Justice, becoming the first candidate of the Greek Rally who did not win the elections, something which had not happend since 1951.