EURO ZONE leaders and the IMF have handed down an ultimatum to Greece to pass an early referendum on its bailout or lose the €8 billion rescue loan it needs to avert bankruptcy within weeks.
Greece had expected to receive the money from its international partners in less than a fortnight but they have now threatened to withhold the payment until the referendum is passed.
Athens is on the verge of running out of cash so the manoeuvre raises the stakes drastically in the turmoil set off by prime minister George Papandreou when he chose to call the unexpected vote.
Mr Papandreou’s decision to call the referendum has thrown a new European rescue plan for the euro zone into disarray, only days after EU leaders agreed at a summit to boost their bailout fund and recapitalise weak banks.
The package agreed on October 27th included an agreement on a second EU-IMF bailout for Greece, a deal which embraces a 50 per cent write-down its privately-held sovereign debt.
German chancellor Angela Merkel and French president Nicolas Sarkozy told reporters late last night in Cannes that the IMF shared Europe’s position that the loan – Greece’s sixth under its first bailout – should not be paid until the referendum is passed.
“This referendum has changed the psychological situation massively,” Dr Merkel said.
“We want to help Greece. We want Greece to remain a member of the euro area but there is this unilateral decision taken by Greece that has changed the situation significantly,” she added.
“This is why we’re saying very clearly the sixth tranche can only be dispersed once Greece has adopted all of the parts of the decisions of the 27th of October and, additionally, any doubt as to the outcome of the announced referendum are removed. That is to say there is a positive vote on this referendum.”
Mr Sarkozy said Greece will not receive “a single cent” without holding to terms of its bailout deal.
“We will not let the euro be destroyed nor will we let Europe be destroyed or torn apart,” he said.
“We’re simply saying that we cannot provide money belonging to the European taxpayers until rules that were agreed by unanimity in Brussels last week are respected. We are asking for nothing. We are saying those are the rules we agreed.”
The French and German leaders summoned Mr Papandreou for a dressing down in Cannes last night on the eve of a G20 summit, which is now set to be dominated by the Greek question.
They said Mr Papandreou had agreed with them that the referendum wording should be framed as a choice as to whether Greece should remain in the euro zone or not.
“This referendum needs to be in its very core about the question: does Greece wish to remain in the euro area, yes or no?” the chancellor said.
Early this morning, in a short press conference after Merkel and Sarkozy had finished, he refused to be drawn on the precise wording of the proposed referendum.
Mr Papandreou wanted to have the referendum in January, but it is now set to take place on December 4th or 5th after his international sponsors forced his hand. The IMF board has yet to agreed to pay its portion of the €8 billion loan.
Mr Papandreou said the poll will be held “quite a few days” before the new loan was needed.
European leaders believe Athens has enough cash to keep paying public wages and pensions until mid-December but no longer than that. If the country is to avoid bankruptcy, it will have to pass the referendum by then.
In the meantime, tension is likely to persist in international markets in the weeks before the referendum, although US and European shares and the euro rose yesterday, the “spread” or difference between the price of French and German ten-year bonds hit its highest level since the euro’s introduction.
