Eurozone's ultimatum to Greece: put up or get out

Referendum brought forward after pressure from France and Germany, while Greeks told that bailout will be withheld until after vote on euro membership

Greece last night agreed to hold an early referendum on the Eurozone crisis and to make the vote a simple question of whether Greeks wanted to remain in the euro after France and Germany warned that it would not receive bailout funds without doing so.

The Greek Prime Minister, George Papandreou, who stunned European capitals by announcing the referendum earlier this week, was placed under intense pressure in emergency talks that carried on late into the night on the eve of the G20 summit in Cannes.

He agreed to bring forward the referendum to early next month – 4 or 5 December – and to ask the Greek people to decide on what would amount to a simple "in or out" question.

The German Chancellor, Angela Merkel, said after the talks broke up: "The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?" It was agreed that Mr Papandreou could choose the referendum wording himself but that he must not lead the Greek people to believe that they could reject the painful austerity medicine contained in last week's €1 trillion eurozone bailout package and still remain within the euro.

France and Germany had earlier given Athens a stark warning. The EU and IMF would withhold an €8bn payment to Greece due next month unless the referendum was held rapidly, and focused on membership of the euro. This amounted to a threat to turn off Greece's life-support machine and plunge the debt-crippled country into default.

The wording of the referendum question could be crucial. Polls indicate that most Greeks are hostile to the terms of the deal but are anxious to stay in the euro and the European Union.

Chancellor Merkel and President Nicolas Sarkozy warned Mr Papandreou in Cannes last night that other eurozone countries would rather pull the plug on Greece – and shove it out of the euro – than face months of market uncertainty. They said a Greek "train crash" was preferable to a prolonged period of market turmoil that might increase speculation against Italian and French debt, destroy the euro and plunge the world into a recession.

Chancellor Merkel said: "We would rather achieve a stabilisation of the euro with Greece than without Greece, but this goal of stabilising the euro is more important." Speaking at a joint press conference with Ms Merkel, President Sarkozy said: "Our Greek friends must decide whether they want to continue the journey with us."

Mr Papandreou said last night that he was confident that he could win a "yes" vote next month. "The Greek people want us to remain in the eurozone," he said. "We are part of the eurozone and we are proud to be part of the eurozone. Being part of the eurozone means having many rights and also obligations. We can live up to these obligations. I do believe there is a wide consensus among the Greek people and that's why I want the Greek people to speak."

Mr Papandreou did gain some authority earlier yesterday when, after a six-hour meeting that wrapped up at 3am, his Cabinet decided unanimously to back his plans for a referendum, even though its own party has shown scant appetite for the proposal. But it was reported that several ministers voiced their opposition to the decision.

The parliamentary debate in Athens on the confidence motion began yesterday afternoon amid open hostility to the plan from the media and many politicians.

The Conservative opposition leader, Antonis Samaras, said Mr Papandreou had "put the country in the centre of a global storm". On its front page, the left-leaning newspaper Eleftherotypia described the Prime Minister as "the Lord of Chaos".

Mr Papandreou's hopes of prevailing in the confidence vote hang by a thread. With the nominal support of 152 of 300 seats, it would take only a small rebellion to thwart his plans and force elections. The minds of Greek legislators were concentrated by the news that the EU and IMF may hold back €8bn of aid due to be paid to Greece this month.

Brussels believes that Greece has enough funds to struggle on until December. An EU official told Reuters: "The sooner Greece holds the referendum, the sooner the sixth tranche will be paid. But right now, it isn't going to be paid."

Opposition fury over sacking of military chiefs

Greek opposition leaders reacted with outrage yesterday to the sacking of the country's military chiefs, calling it a bid to stack the armed forces with party loyalists before a possible government collapse over Greece's debt crisis.

Late on Tuesday, the socialist government replaced the heads of the army, navy and air force and the leader of the joint chiefs-of-staff. Officials said the move was planned long ago and unrelated to political turmoil. But the main opposition, the conservative New Democracy party, said: "We won't accept this decision."

Greek governments have kept a tight rein on the armed forces since a seven-year military junta collapsed in 1974. Army chiefs are often selected on the basis of their party loyalty. The outgoing military leadership was appointed in August 2009 by the previous conservative administration, just before national elections were called. REUTERS

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