Greek drama

More commonly associated with film stars celebrating movie success, the fashionable resort of Cannes instead became the venue for a less glamorous task late on Wednesday - that of staving off the latest threat to the integrity of the eurozone.

German Chancellor Angela Merkel, European Commission President Jose Manuel Barroso, the chairman of the eurozone group of finance ministers Jean-Claude Juncker, European Council President Herman Van Rompuy and International Monetary Fund (IMF) managing director Christine Lagarde were all present for crisis talks convened by French President Nicolas Sarkozy.

The group gathered there - ahead of the meeting G20 meeting of leading world economies - to address the critical situation that followed Greece's announcement that a referendum on the EU rescue plan is to take place.

First and foremost, the aim was to clarify the consequences of any "no" vote in the referendum - which German Chancellor Angela Merkel said would be a de facto decision on whether to stay in the eurozone.

"We want to help Greece, and we want them to stay in the eurozone," Merkel said. "But the unilateral decision by Greece hangs in the air, and the situation has changed… The eurozone must be kept stable. We would prefer to accomplish this with Greece, rather than without Greece."

After those discussions, Greek Prime Minister George Papandreou was summoned to provide more information to the visibly disgruntled leaders. More specifically, they wanted to know what question would be put to the Greek people, and when the vote would take place.

Rumblings of discontent

With Europe eagerly awaiting clear signals from the Greek government, Merkel indicated that she, like Sarkozy, was annoyed at not having been informed earlier of the decision to hold the referendum.

She also said explicitly that Greece's next tranche of funding from the EU rescue fund - totaling eight billion euros ($11 billion) - would only be paid out if the referendum was approved. Previously, it had been thought that the funding package would go ahead without any problems.

Leaders made it abundantly clear to Papandreou that the terms of the rescue package were no longer negotiable. Papandreou, for his part, said that the referendum would be held as soon as possible - likely in the first week of December.

Division in Athens

Apart from the scrutiny in Cannes, Papandreou seemed to be quickly losing support in Athens, just one day after his cabinet gave its official approval of the plan and one day before a vote of confidence in parliament.

Greek Finance Minister Evangelos Venizelos appeared to have changed his mind on the referendum after talks with Merkel and Sarkozy in Cannes. He said in a written statement that "Greece's place in the euro is a historic achievement" and that "this established right of the Greek people cannot be put under scrutiny in a referendum." He added that the most important prerequisite is for Greece to feel "safe and stable."

"Greek banks are totally protected as an integral part of the European banking system," he said. "That was clear from the discussion in Cannes last night."

Meanwhile state television reported Thursday that Development Minister Michalis Chryssohoidis changed his mind on the referendum as well, preferring parliament to vote on the EU rescue package rather than the entire Greek populace.

Widespread irritation

The ability to solve the Greek crisis has become a litmus test for the trust that Europe can expect from around the world. It had generally been held to be the case that confidence had been regained with the decisions that were made at the last European summit in Brussels at the end of October.

Eurozone leaders had agreed, among other things, on a new 100-billion-euro rescue package for Greece. Creditors, such as banks and insurance companies, were to be asked to write off about half of their Greek debt. The unexpected move by the Greek premier has once again cast matters into doubt - and led to irritation in the prelude to the summit proper.

On Wednesday evening, Chinese President Hu Jintao arrived in Cannes for a bilateral meeting with French President Nicolas Sarkozy.

Wait and see policy

On the question of a possible participation by the emerging economies in solving the European sovereign debt crisis, there are growing signs that such countries are hesitant to act immediately, preferring instead to wait and see how Brussels deals with the latest Greek crisis.

In recent weeks there has been intense speculation that China and other emerging countries might buy bonds to ensure greater liquidity. That now looks to be unlikely ahead of any referendum.

Details of Italy's latest budget plans were also being eagerly awaited in G20 circles, with Italian Prime Minister Silvio Berlusconi due to present the proposals on Thursday. Unlike Greece, Italy is a member of the G20. Any failure of the Greek rescue effort could bode badly for a heavily indebted Italy, with fears that there could be a significant risk of infection to other European economies.

Signs of frustration

US President Barack Obama is also likely to have questions. Immediately after his arrival on the Cote d'Azur early on Thursday, meetings were organized with both Chancellor Merkel and President Sarkozy. The rekindled Greek debate has led to renewed concern in the US.

While Washington does not want to be seen as putting undue pressure on Europe, there are signs of frustration that the G20 Summit's original agenda have been upstaged by the Greek government's latest move.

The US had hoped that this summit could be used to send out positive signals that might help boost the global economy.

That's why the 20 nations hope to be able to return to the original agenda on Thursday. This includes the question of new regulations for financial markets, the stimulation of growth and the medium-term reform of the global currency system.

It is hoped that such measures might - despite the distraction of Greece - help the world find its way onto a springboard for long-term growth.

Author: Daniel Scheschkewitz, Cannes / acb
Editor: Michael Lawton