President Nicolas Sarkozy of France and Chancellor Angela Merkel of Germany warned last night that Greece must decide if it wants to abide by the terms of a bailout deal and to stay in the euro.
Mr Sarkozy warned that not a further cent in rescue loans would be transferred until Greeks made a clear response, with Athens set to run out of funds and default in weeks unless it receives eight billion euro.
'We hope to pursue Europe with our Greek friends,' Mr Sarkozy told a press conference following crisis talks with Greek Prime Minister George Papandreou, German Chancellor Angela Merkel and EU and IMF officials.
On Monday, Mr Papandreou shocked Europe by saying he would put the terms of a bailout deal agreed last week with European leaders to a referendum, sending panic through markets which thought the rescue plan a done deal.
'The Greeks have to decide whether to continue the adventure with us or not,' he warned. 'We hope to continue with the Greeks, but there are rules that have to be respected.'
'The Europeans and the IMF can't release the sixth tranche of loans to Greece until Greece endorses the package of October 27,' Mr Sarkozy said, calling for the referendum 'if one is needed' to be carried out swiftly.
If the provisions of the loan agreements are not respected 'neither Europe nor the IMF can release even a further cent.'
Mr Papandreou later said that a referendum could be held as early as December 4, and acknowledged that Greece's future in the euro was at stake.
'The essence in this is not the question only of a programme, this is a question of whether we want to remain in the eurozone. That's very clear,' he said.
Meanwhile, back in Athens, lawmakers began a confidence debate that could see the Greek leader turfed out of office by tomorrow as questions grew over whether the country would receive its next eight billion euro slice of aid.
“It is difficult to envisage in the current situation the disbursement of the sixth tranche under the agreed terms,” a senior European official warned, speaking on condition of anonymity as G20 leaders had yet to meet. Mr Sarkozy had hoped to use today’s G20 summit to relaunch a drive to reform global finance, but the meeting of the world’s most powerful economies has now been overshadowed by the eurozone debt debacle.
EU leaders had hoped that last week’s deal had put the debt crisis to bed, but Athens’ call for a popular vote on the bailout plan now threatens to tip the global economy back into recession.
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,” Ms Merkel told reporters before flying to the French Riviera.
“For this, we need clarity and that’s what these talks tonight are about.”
Luxembourg’s Prime Minister and eurozone chairman Jean-Claude Juncker said: “We took a decision last week as 17 (member states), we can’t allow anyone to disassociate himself from that decision.”
Ms Lagarde also urged European leaders to stick by their debt crisis plan. The IMF chief said “of course there are hiccups on the road, sometimes major hiccups,” but what matters “is the resilience and the determination of the European partners” to implement the October 27 agreement to bail Greece out.
A senior European official said that at the talks the leaders had agreed they would push Mr Papandreou to hold the referendum as soon as possible and on the question of Greece’s continued membership in the eurozone.
“You have to call a spade a spade, that this referendum will raise the question of Greece’s membership in the eurozone,” said the official.
The leaders also discussed whether the next eight billion euros in rescue loans, which Greece needs within weeks to avoid defaulting on its debts or even failing to pay government salaries, could be released.
European stock markets fell heavily on Tuesday, and Italian borrowing rates rose sharply. European equities and the euro rose moderately yesterday but tension on the eurozone bond market increased.
Italy measures
Italy’s government gave the go-ahead yesterday to a package of economic reform measures aimed at easing pressure from financial markets worried about contagion from the eurozone debt crisis.
The move comes a day after the Italian stock market suffered its worst session since the beginning of the global crisis in October 2008 and on the eve of a summit of G20 leaders focusing on the state of the world economy.