Updated November 03, 2011 11:48:03
Photo: Grilled: Greek prime minister George Papandreou. (AFP: Lionel Bonaventure)
The leaders of Germany and France have told Greece it will not get another cent in European aid until it decides whether it wants to stay in the eurozone.
Nicolas Sarkozy and Angela Merkel held talks with Greek prime minister George Papandreou on the sidelines of the G20 meeting in Cannes this morning after Mr Papandreou announced shock plans to hold a referendum on the country's multi-billion-euro bail-out deal.
After the talks, German chancellor Ms Merkel said: "We would rather achieve a stabilisation of the euro with Greece than without Greece, but this goal of stabilising the euro is more important."
French president Mr Sarkozy hammered home the same message, telling a joint news conference with Ms Merkel: "Our Greek friends must decide whether they want to continue the journey with us."
Mr Papandreou outraged European partners and caused panic on financial markets by announcing on Monday that Greece would hold a referendum on a second bailout plan negotiated with euro zone leaders last week.
The Greek leader, looking chastened after a torrid dinner with European Union decision-makers that Ms Merkel called "tough and hard" said the plebiscite would take place around December 4.
"It's not the moment to give you the exact wording, but the essence is that this is not a question only of a program, this is a question of whether we want to remain in the eurozone," Mr Papandreou said.
Despite opinion polls showing a majority of Greeks, weary of two years of deepening austerity, think the bailout package was a bad deal for Greece, he said he expected more support from the wider population than he could muster in parliament.
"I believe the Greek people are wise and capable of making the right decision for the benefit of our country," he said.
Greek aid halted
Mr Sarkozy and Ms Merkel said eurozone finance ministers would meet next Monday to speed up decisions on leveraging the eurozone's rescue fund to build a firewall to protect other weaker members of the 17-nation currency area.
The EU and IMF said Greece would not receive an urgently needed 8 billion euro ($10.6 billion) aid instalment, due this month, until after the vote because official creditors wanted to be sure Athens would stick to its austerity program.
European Commission president Jose Manuel Barroso delivered this message to Mr Papandreou before his arrival in Cannes, EU sources said.
This was after the Greek leader sent a letter to EU leaders saying he wanted to negotiate the details of the second package before the referendum, they said. The letter angered European officials, raising the level of mistrust towards Greece.
Mr Papandreou said Greece had enough money to keep running until mid-December, when it has to redeem more than 6 billion euros in debt.
Europe under threat
If Mr Papandreou loses the referendum, Greece faces a disorderly default which would hammer Europe's banks and threaten the much larger economies of Italy and Spain, which the bloc may not have the means to bail out.
The chairman of eurozone finance ministers, Jean-Claude Juncker, said Greece could go bankrupt if voters rejected the bailout package.
Mr Sarkozy's office said several eurozone leaders attending the G20, including the Spanish and Italian prime ministers, would meet on Thursday morning in Cannes to review the crisis.
In fresh signs of the market turmoil unleashed by the Greek move, the euro zone's EFSF rescue fund, which lends money to troubled member states, was forced to put on hold plans to raise 3 billion euros in the bond market.
Doubt about Europe's ability to contain the debt crisis has once more sent markets into a spin and put Italy firmly in the firing line.
Italian prime minister Silvio Berlusconi scrambled to come up with measures to placate markets, holding an emergency cabinet meeting to accelerate budget reforms amid mounting calls for his resignation.
Until the Greek situation is clearer, last week's 130 billion euro ($173 billion) European package of measures is likely to be in limbo.
The Greek press, including dailies traditionally friendly to the government, have almost unanimously condemned Mr Papandreou.
Centre-left newspaper Eleftherotypia described the prime minister on its front page as "The Lord of Chaos". Ethnos, another pro-government paper, called the referendum "suicidal".
ABC/Reuters
Merkel, Sarkozy read riot act to Greece - ABC News (Australian Broadcasting Corporation)
