VIDEO: Debt Crisis: Greece’s Papandreou faces showdown with Merkel and Sarkozy
GREEK Prime Minister George Papandreou faces a showdown with the leaders of the eurozone’s two biggest economies – Germany and France – following his shock announcement of a referendum on the new EU/IMF bailout programme.
But the message from both German Chancellor Angela Merkel and French Minister Nicolas Sarkozy will be simple – implement the bailout plan as agreed.
Mr Papandreou has been summoned to the G20 meeting in France tonight after his call for the referendum caused havoc on world stock markets this week and the whole eurozone bailout plan looked increasingly like it was unraveling just as it appeared that a way to solve the sovereign debt crisis dogging the region had been reached.
European stock markets were more bearish today following massive sell-offs yesterday but they are still wary of what is coming down the track while the European Financial Stability Facility was forced to delay bond sales because of the market conditions created by the unexpected Greek move while the cost of Italian and French borrowing also rose.
In the US, stocks rebounded after two days of losses boosted by upbeat job market figures as investors monitored the Greek crisis meeting.
The US Federal Reserve also stopped short of boosting the economy further claiming the situation is improving.
Ms Merkel said she wanted clarification from Mr Papandreou following the shock referendum announcement which was later backed by the Greek government after overnight talks.
“We agreed a programme with Greece last week.
“And from the EU side, at least for Germany, we want to implement this programme.
“For this, we need clarity and that's what these talks tonight are about,” she said today.
European Commission chief Jose Manuel Barroso warned that if the deal agreed last week for Greece, which includes a €100bn write-off of its debts, is not adhered to the country could be in for a rough time.
“Without agreement of Greece to the programme supported by the EU and IMF, conditions for Greek citizens will become much more painful, particularly for the most vulnerable.”
Earlier Germany’s foreign minister Guido Westerwelle also warned the rescue deal cannot be renegotiated.
"The whole programme we just agreed last week cannot be placed back on the table," he said in Istanbul on the sidelines of an international conference.
Following a seven-hour overnight cabinet meeting, the Greek government backed plans for the referendum which could be held as soon as next month – although some members of his socialist party resigned ahead of the meeting.
Mister Papandreou, who also faces a confidence vote on Friday, told Greek ministers: "The referendum will be a clear mandate and a clear message in and outside Greece on our European course and participation in the euro."
But much will depend on how the Greek premier frames the debate and whether it will focus will be on Greece’s membership of the eurozone, which is popular with Greeks, or the bailout and the painful austerity measures it brings, which are not.
A recent poll suggested most Greeks think the deal thrashed out by eurozone leaders last week is not a good one – despite agreement on a 50pc writedown of Greek debt by private creditors.