Greece throws G20 summit into chaos with bail-out vote

THE G20 summit of global leaders taking place tomorrow was being hastily redrawn last night after Greece’s prime minister rocked the global economy by effectively tearing up his country’s days’ old bail-out deal and pledging to put the matter to a referendum next year.

On another dramatic day, George Papandreou stunned fellow world leaders – and even close colleagues – by unilaterally announcing he intended to put the entire package to the people of Greece in the New Year.

The move comes less than a week after he shook on a deal in Brussels with fellow eurozone leaders to accept further public-sector cuts in return for a 50 per cent debt write-off, and a fresh EU loan to help service his country’s vast debts.

Mr Papandreou’s shock announcement prompted market panic, wiping billions of pounds off markets, and sending bank shares tumbling once again, amid fears that a likely “no” vote would trigger a chain reaction of European defaults, bank failures across the Continent, and a new recession in the developed world.

But, as EU leaders reacted angrily to the plan, there was growing speculation that Mr Papandreou could be forced to resign by the end of the week after two members of his government quit yesterday.

That left his parliamentary majority on a knife edge, ahead of a confidence vote due to take place on Friday.

As global leaders sought to restore calm, French President Nicolas Sarkozy and German Chancellor Angela Merkel announced they will meet later today in Cannes, where the G20 summit takes place on Thursday and Friday. They issued a statement last night insisting they will discuss “full implementation” of last week’s bailout deal.

Later, Mr Sarkozy said the “sole possible way” to resolve the eurozone crisis was to press ahead with last week’s deal and not delay matters with a referendum.

Meanwhile, the White House declared last night that the move showed the need for Europe to “elaborate further and implement rapidly” the deal that was agreed last week by eurozone leaders.

President Barack Obama and Prime Minister David Cameron are expected to urge those leaders to clarify how the £1 trillion bail-out plan will work.

However, the G20 summit is now guaranteed to be dominated by Europe’s debt crisis, putting huge pressure on both Mr Sarkozy and Ms Merkel to propose a solution.

Markets yesterday reacted with mass panic to the further sign of instability in Greece, with Germany’s DAX and France’s CAC index both losing 5 per cent of their value.

The biggest losers were banks exposed to Greek and other European sovereign debts, with French bank Societe Generale plunging by 15.4 per cent.

The markets fall followed Mr Papandreou’s announcement on Monday evening that a referendum would take place in the New Year in what he described as “a supreme act of democracy and of patriotism for the people to make their own decision”.

Opponents claimed that he had acted out of political desperation. Internationally, analysts warned that a referendum could only trigger fresh uncertainty, if Greeks vote “no”.

Michael Hewson, analyst at CMC Markets, said: “While it may be the democratic thing to do, what happens if Greece votes ‘no’, which is possible given how unpopular the bail-out plan appears to be amongst Greece’s voters?

“The resulting fall-out could well result in a complete meltdown of the European banking system and throw Europe into turmoil.”

The fear is that a “no” vote would lead to a Greek default, and would see international investors fleeing from other debt- burdened European nations such as Italy, throwing its future into doubt as well.

It emerged last night that Mr Papandreou has been given a late invitation to the G20 summit, which officially begins tomorrow, where he will be asked to explain his sudden intervention.

The talks between Mr Sarkozy and Ms Merkel ahead of the summit will focus on a “timeline” for implementation of the debt-relief package – which is not expected to include a delay until the Greek people have their say.

Chancellor George Osborne warned that the referendum had added to “the instability and uncertainty in the eurozone”.

Swedish foreign minister Carl tweeted: “I truly fail to understand what Greece intends to have a referendum about. Are there any real options?”

There were also claims that the referendum would be practically impossible, as two-thirds of the parliament would be needed to support it.