EU leaders drew a line in the sand for Greece over its debt rescue and a shock referendum, warning yesterday before a G20 summit that the bailout is the last offer.
The reignited eurozone debt crisis now poses the main risk of recession in the global economy, a central issue for the G20 summit opening today.
The referendum shock also raises the specter 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 today and tomorrow in Cannes, a French government official said. “We have to act quickly.”
The message from Sarkozy in an unusual statement late on Tuesday and from German Foreign Minister Guido Westerwelle in Ankara yesterday was clear — the complex rescue strategy agreed last week is a take-it-or-leave-it offer.
“The whole program we agreed last week cannot be placed back on the table,” Westerwelle said.
Sarkozy said 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 the debt crisis, and after hard-fought negotiations last week it came up with a deal that would wipe 100 billion euros (US$138 billion) 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 more than 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.
A French government source said Sarkozy and Merkel were set to deliver a clear message to Papandreou — that the referendum should be on whether Greece stays within the eurozone or not.
That would be the first time that France and Germany have so explicitly raised the possibility of a country abandoning the euro.
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.”
“The referendum will be a clear mandate, but also a clear message inside and outside Greece on our European course and our euro membership,” Papandreou has said.
The eurozone would continue to support Greece if it wants to remain in the single currency and it presses ahead with the necessary reforms, German Finance Minister Wolfgang Schaeuble said.
“If Greece will accept the burden and efforts required by the aid program, 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.
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,” Oettinger told German daily Die Welt.
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