(photo credit: Reuters)
ATHENS/CANNES - Greece's teetering government backed away from a proposed referendum on staying in the euro on Thursday, while European leaders talked for the first time of a possible Greek exit to preserve the single currency.
Fast-moving events in Athens overshadowed the first day of a summit of the Group of 20 major economies on the French Riviera, with world leaders again anxiously urging Europe to act to stop contagion from its sovereign debt crisis.
Crisis in Greece may fell gov't, break euro
They discussed increasing the International Monetary Fund's resources to help distressed states and constructing a financial firewall to protect vulnerable euro zone economies Italy and Spain from a possible Greek default, participants said.
In Athens, beleaguered Prime Minister George Papandreou said his call this week for a referendum, which sparked panic on global financial markets, "was never a purpose in itself", and he would be happy if the vote were not held.
Papandreou told lawmakers from his Socialist party he had agreed to
talks with the center-right opposition on a transitional government to
implement a new EU/IMF bailout program. If that led to a consensus in
support of the plan, there would be no need for a referendum.
At a bruising meeting in Cannes on Wednesday night, French President
Nicolas Sarkozy and German Chancellor Angela Merkel warned Papandreou
that Athens would not receive a cent more in aid until it met its
commitments to the euro zone.
Greece was due to get a vital 8 billion euro installment this month and
says it will run out of money in mid-December if it does not get the
Despite the turmoil in Athens and uncertainty over the euro zone,
European stock markets and the euro rallied in volatile trading as the
likelihood grew that Greece would not hold the highly risky public vote.
The European Central Bank also provided a surprise boost by cutting
interest rates by 25 points to 1.25 percent and saying its policy of
buying euro zone government bonds would continue for now with limited
scope to support its monetary policy.
The leaders of China, Russia and the United States pressed the Europeans
to move more swiftly to contain the debt crisis, with Washington urging
Germany to relent and let the ECB play a greater role in financial
firefighting, G20 sources said.
"Europe should aid itself. The European Union has everything for that
today -- the political authority, the financial resources and the
backing of many countries," Russian President Dmitry Medvedev said.
Canadian Prime Minister Stephen Harper said the leaders had discussed
contingency plans if Greece were to leave the euro zone, "but my
expectation is that cooler heads will prevail and the package will be
accepted (by Greece)".Greek finance minister slams Papandreou
Greek Finance Minister Evangelos Venizelos broke ranks with Papandreou,
saying Greece's euro membership was a historic achievement and "cannot
depend on a referendum". He demanded that the government openly ditch
the referendum idea.
Dissident lawmakers in the ruling PASOK party also spoke out against a
plebiscite and called for a national unity government or early
elections, casting doubt on whether Papandreou would survive the week in
office. Some suggested former ECB vice-president Lucas Papademos should
head such an administration.
Signaling a will to compromise, opposition leader Antonis Samaras called
for a transitional government to lead Greece to early elections and
said parliament should first ratify last week's 130 billion euro ($178
billion) bailout deal.
European Union leaders have long called for national unity in Greece in
support of painful austerity measures needed to cut the country's
crippling debt, expected to reach 160 percent of gross domestic product
Sarkozy told a news conference the tough message delivered by France and
Germany to Greece's political class was showing signs of bearing fruit.
"Things are progressing," he said, welcoming Samaras' support for the
bailout plan.European calls for Greek dismissal from euro zone heard
Euro area leaders talked openly of a possible Greek exit from the
17-nation currency area, seeking to maximise pressure on Athens and
preserve the euro in case of a "no" vote.
Merkel repeated on Thursday that the stability of the euro had priority
for Germany over Greece's euro membership, touching a popular nerve at
home. Germany's best selling Bild newspaper railed against Greece and
demanded it be ejected from the euro.
Merkel also said Italy and Spain must press on with economic reforms.
The chairman of euro zone finance ministers, Luxembourg Prime Minister
Jean-Claude Juncker, said policymakers were working on possible
scenarios for a Greek exit.
The specter of a possible hard Greek default and euro exit hung over the
G20 summit, highlighting Europe's frailty and divisions just when
Sarkozy had hoped to showcase his leadership of the world's major
The summit had been meant to focus on reforms of the global monetary
system and steps to rein in speculative capital flows and regulate
commodities markets, but the shockwaves from Greece upended the talks.