European Leaders Prepare For Showdown On Greek Debt Referendum

Key European leaders held strategic talks Wednesday as they prepared for a showdown with Greek Prime Minister George Papandreou over his unexpected call for a referendum on last week’s agreement to contain the continent’s debt contagion.

French President Nicolas Sarkozy, German Chancellor Angela Merkel and other European leaders met in Cannes, France, a day before the G20 summit and ahead of Mr. Papandreou’s arrival from Athens. The European leaders planned to meet with Mr. Papandreou later Wednesday to voice their displeasure at the plan for a Greek vote. No date has been set for the referendum, nor the shape of the question to be asked.

Greece is not a member of the G20 group of leading and emerging economies, but Mr. Papandreou’s referendum plan has become the summit’s central issue.

The call for the Greek vote sent world stock markets plunging Tuesday, as investors worried the debt relief plan would unravel and Greece would default on its international loans.

The agreement reached last week calls for banks to forgive $140 billion in Greek debt to help stabilize its precarious finances. But the Greek people have protested loudly, and sometimes violently, against the austerity measures demanded by international creditors.

Mr. Sarkozy said the continent-wide agreement is “the only way to solve Greece’s debt problem.” Mrs. Merkel said Europe wants to proceed with the debt relief plan, but said the continent’s leaders “need clarity” from Greece about when the referendum would be held and what question voters would be answering.

The French minister for European affairs, Jean Leonetti, said the referendum should ask voters whether they want Greece to stay in the bloc of 17 nations that use the euro currency, not whether they agree with the debt relief plan. He said last week’s agreement cannot be renegotiated.

Greek Cabinet ministers have given their support for Mr. Papandreou’s referendum plan. But whether he can survive Friday’s scheduled confidence vote in Parliament remained an open question.

Some lawmakers in his tenuous Socialist party majority called for his resignation or threatened to defect on the confidence vote in order to kill the referendum. Others called for a temporary unity government to carry out the debt-relief agreement ahead of a new national election.

The prime minister told his Cabinet that Greeks would be asked whether they want to keep using the euro currency, instead of returning to its old drachma currency. He said any deal will only be implemented with the consent of the Greek people, and that he hopes any turmoil caused by his unexpected announcement will only be temporary.