Eurozone draws line for Greece on debt rescue before G20

2nd November 2011, Comments 0 comments

European Union leaders drew a line in the sand for Greece over its debt rescue and a shock referendum, warning on Wednesday before a G20 summit that the bailout is the last offer.

The re-ignited eurozone debt crisis now poses the main risk of recession in the global economy, a central issue for the G20 summit opening on Thursday.

The referendum shock also raises the spectre of Greece leaving the eurozone if Greeks reject the rescue terms, and it has put Italy in danger over its debt mountain.

French President Nicolas Sarkozy, German Chancellor Angela Merkel, top EU leaders and the head of the IMF were to hold Greek Prime Minister George Papandreou to account for the crisis his referendum announcement has relit.

"France and Germany decided to convoke George Papandreou to explain the situation before the G20" meeting of advanced economies on Thursday and Friday in Cannes, a French government official told AFP. "We have to act quickly."

And the message from Sarkozy in an unusual statement late on Tuesday and from the German Foreign Minister Guido Westerwelle in Ankara on Wednesday was clear: the complex Greek-eurozone rescue strategy agreed in extremis early on Thursday is a take-it or leave-it offer.

Westerwelle said: "The whole programme we just agreed last week cannot be placed back on the table."

Sarkozy insisted on Tuesday that the deal "is the sole possible way to resolve Greece's debt problems."

Europe has come under intense pressure from its G20 partners to contain its debt crisis, and after hard-fought negotiations last week came up with a deal that would wipe 100 billion euros off Greece's debt, strengthen banks to weather those losses and more than double the firepower of its bailout fund.

With Greek voters bitter after enduring over a year of painful austerity measures, markets were spooked by the possibility that it could be rejected, which would likely mean the country would go bankrupt and be forced to leave the eurozone.

European stock markets fell heavily on Tuesday, and Italian borrowing rates rose sharply. European markets steadied on Wednesday, after Asia stocks finished mixed.

The euro rose to $1.3760, from $1.3697 late in New York on Tuesday.

A French government source said Sarkozy and Merkel were set to deliver Wednesday a clear message to Papandreou: that the referendum should be on whether Greece stays or not within the eurozone.

That would be the first time that France and Germany so explicitly raised the possibility of a country abandoning the euro, hitherto a taboo subject.

A European governmental official said: "That would be unfortunate for Greece, as their fate outside the eurozone would be much worse than the solutions currently proposed. But if that's what they decide, then well, let them go!"

Papandreou has said: "The referendum will be a clear mandate, but also a clear message inside and outside Greece on our European course and our euro membership."

The eurozone will continue to support Greece if it wants to remain in the single currency and presses ahead with necessary reforms, German Finance Minister Wolfgang Schaeuble said.

"If Greece will accept the burden and efforts required by the aid programmes, if it wants to stay within the eurozone, then we will support it," Schaeuble told the daily Financial Times Deutschland in an interview.

The Greek referendum announcement blew out of the water European hopes to show up at the G20 summit with a plan to deal with its debt crisis.

The eurozone's troubles are increasing threatening to spill outside of Europe and the OECD warned earlier this week a quick resolution was key to ensure a rebound in the world economy.

EU Energy Commissioner Guenther Oettinger warned the delay entailed by holding a referendum, which Athens has suggested holding in January, has "endangered" the single currency.

"The situation is difficult enough and now we are losing at least three months to save the euro," Guenther Oettinger told German daily Die Welt.

Asian G20 members China, Japan and India heaped further pressure Wednesday on Europe to get its house in order.

"China sincerely wants stability for the eurozone and the euro," President Hu Jintao told the French newspaper Le Figaro, but without saying what China could do to help Europe resolve its crisis, notably by participating in a rescue fund for indebted EU countries.

China's official Xinhua news agency called on EU leaders to persuade Greece to "drop the referendum idea" or help them find a "better solution to their political embarrassment".


© 2011 AFP

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