Eurozone draws line for Greece on debt rescue on G20 eve

2nd November 2011, Comments 0 comments

European Union leaders held crisis talks on the eve of the G20 summit Wednesday in response to Greece's threat to delay or derail a eurozone bail-out package by putting it to a referendum.

French President Nicolas Sarkozy, German Chancellor Angela Merkel, senior EU leaders and IMF director Christine Lagarde met in Cannes to prepare an ultimatum for Greek Prime Minister George Papandreou.

The Greek leader was due in the French resort later Wednesday to receive his dressing down, even as lawmakers back in Athens began a confidence debate that could see him turfed out of office by Friday.

Sarkozy had hoped to use Thursday's G20 summit to relaunch a drive to reform global finance, but the meeting of the world's most powerful economies will now be dominated by the eurozone debt debacle.

Leaders fear the reignited crisis now poses the main threat of tipping the global economy back into recession, and Washington and China are expected to lead calls for Europe to put its house in order.

The referendum shock has raised the spectre of the country leaving the eurozone altogether if Greek voters reject the EU rescue terms, and it has increased the threat posed to Italy by its own debt mountain.

"For us, it is actions that matter. We agreed a programme with Greece last week. And from the EU side, at least for Germany, we want to implement this programme," Merkel told reporters before flying to the French Riviera.

"For this, we need clarity and that's what these talks tonight are about."

The pre-summit message from France and Germany was clear: the complex Greek-eurozone rescue strategy agreed in extremis last week is a take-it or leave-it offer.

"It is too late to persuade them to go back on the decision to hold a referendum," a French G20 source said. "The idea is that they hold the referendum as quickly as possible and make it about being in the euro."

Europe was under intense pressure from its G20 partners to contain its debt crisis, and came up with a deal to wipe 100 billion euros off Greece's debt, strengthen banks and double the firepower of its bailout fund.

With Greek voters bitter after enduring painful austerity measures, markets were spooked by the possibility the deal 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 rose moderately on Wednesday but tension on the eurozone bond market increased.

For months the eurozone has insisted that Greece leaving the eurozone is not an option, and would be the first time the possibility of a country abandoning the euro has been so explicitly raised.

A recent poll indicated that most Greeks favour staying in the eurozone, despite hostility towards the tough rescue conditions.

Before setting off for France, Papandreou 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."

Greece is looking forward to the release of 8.0 billion euros in rescue loans in the next few weeks, essential if the country is to avoid a default.

European Commission chief Jose Manuel Barroso warned that "without the agreement of Greece to the EU-IMF programme, the conditions for Greek citizens would become much more painful, in particular for the most vulnerable.

"The consequences would be impossible to foresee."

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, as well as hopes to secure financial support.

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.

G20 members heaped further pressure on Europe.

The White House said it wanted "unanimity of purpose" to emerge from the G20 and White House spokesman Jay Carney said the situation would be a key subject.

Meanwhile, China's President Hu Jintao told the French daily Le Figaro: "China sincerely wants stability for the eurozone and the euro," but without confirming that China would participate in the EU rescue fund.

© 2011 AFP

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