Europe

Wednesday, November 2, 2011 - 10:38

Sarkozy, Merkel: Referendum Must Ask If Greece Will Keep Euro


PARIS (MNI) - French President Nicolas Sarkozy and German Chancellor Angela Merkel think that if there is a Greek referendum on last week's bailout plan, it must be held before January and should ask only one question: Does Greece want to remain in the Eurozone.

According to reports in the French press Wednesday, Sarkozy, Merkel and other European leaders will say exactly that to Greek Prime Minister George Papandreou when they meet him tonight in Cannes, France, prior to the G20 leaders' summit. They will tell him that the referendum he is planning must be held no later than December.

Their thinking is that if Greece rejected the new bailout plan and the austerity conditions attached to it, the country would have to leave the Eurozone anyway. So why not ask the question directly rather than beating around the bush with questions about the details and technicalities of the bailout plan.

France's business daily Les Echos and the afternoon daily Le Monde both reported that Sarkozy and Merkel have coordinated their position with IMF Managing Director Christine Lagarde, Eurogroup Chairman Jean-Claude Juncker, European Commission President Jose Manuel Barroso, European Council President Herman Van Rompuy, and officials from the European Central Bank. The meeting was not mutually arranged, the papers reported: the European officials essentially told Papandreou to be there.

Since Papandreou announced his plan Monday night for a referendum on last week's new EU bailout plan for Greece, global financial markets have gone haywire. The euro has dropped sharply and, more ominously, spreads on peripheral Eurozone bonds -- particularly Italy's -- have widened sharply to new euro-era highs.

The referendum announcement has cast a huge shadow over the bailout plan, since it carries a non-negligible risk that Greek citizens could reject the bailout and the conditions attached to it. Until the referendum is out of the way, there can be no progress on negotiating a 50% debt writedown that is the centerpiece of the plan, or on attracting foreign investors to expand the reach of the European Financial Stability Facility -- another major element of the anti-crisis measures unveiled last Thursday.

An E8 billion loan tranche for Greece, already approved by European leaders but not yet by the IMF, is now clearly on hold, with Greece likely to run out of cash by the end of the year.

According to Le Monde, Sarkozy and other European leaders were not consulted before Papandreou announced the referendum, and they are furious about it. However, in French official circles, there is a sentiment that if Greece self-destructs, at least that would be better for the Eurozone than if fellow members simply declined to provide sufficient aid.

"We can't prevent the Greeks from committing suicide," said one French official quoted by Le Monde. "Better they should do it than Angela Merkel."

The thinking is that if Greece defaulted or left the Eurozone entirely because of its own actions, that could reduce the risk of contagion to the rest of the single currency bloc, at least slightly.

Sarkozy and Merkel will meet at 1630 GMT/1230 EDT this afternoon with Juncker, Lagarde, Barroso, Van Rompuy and an official from the ECB. They will all meet with Papandreou at 1900 GMT/1500 EDT.

--Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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