PARIS (MNI) – French President Nicolas Sarkozy and German
Chancellor Angela Merkel think that if there is a Greek referendum on
last week’s bailout plan, it must be held before January and should ask
only one question: Does Greece want to remain in the Eurozone.

According to reports in the French press Wednesday, Sarkozy, Merkel
and other European leaders will say exactly that to Greek Prime Minister
George Papandreou when they meet him tonight in Cannes, France, prior to
the G20 leaders’ summit. They will tell him that the referendum he is
planning must be held no later than December.

Their thinking is that if Greece rejected the new bailout plan and
the austerity conditions attached to it, the country would have to leave
the Eurozone anyway. So why not ask the question directly rather than
beating around the bush with questions about the details and
technicalities of the bailout plan.

France’s business daily Les Echos and the afternoon daily Le Monde
both reported that Sarkozy and Merkel have coordinated their position
with IMF Managing Director Christine Lagarde, Eurogroup Chairman
Jean-Claude Juncker, European Commission President Jose Manuel Barroso,
European Council President Herman Van Rompuy, and officials from the
European Central Bank. The meeting was not mutually arranged, the papers
reported: the European officials essentially told Papandreou to be
there.

Since Papandreou announced his plan Monday night for a referendum
on last week’s new EU bailout plan for Greece, global financial markets
have gone haywire. The euro has dropped sharply and, more ominously,
spreads on peripheral Eurozone bonds — particularly Italy’s — have
widened sharply to new euro-era highs.

The referendum announcement has cast a huge shadow over the bailout
plan, since it carries a non-negligible risk that Greek citizens could
reject the bailout and the conditions attached to it. Until the
referendum is out of the way, there can be no progress on negotiating a
50% debt writedown that is the centerpiece of the plan, or on attracting
foreign investors to expand the reach of the European Financial
Stability Facility — another major element of the anti-crisis measures
unveiled last Thursday.

An E8 billion loan tranche for Greece, already approved by European
leaders but not yet by the IMF, is now clearly on hold, with Greece
likely to run out of cash by the end of the year.

According to Le Monde, Sarkozy and other European leaders were not
consulted before Papandreou announced the referendum, and they are
furious about it. However, in French official circles, there is a
sentiment that if Greece self-destructs, at least that would be better
for the Eurozone than if fellow members simply declined to provide
sufficient aid.

“We can’t prevent the Greeks from committing suicide,” said one
French official quoted by Le Monde. “Better they should do it than
Angela Merkel.”

The thinking is that if Greece defaulted or left the Eurozone
entirely because of its own actions, that could reduce the risk of
contagion to the rest of the single currency bloc, at least slightly.

Sarkozy and Merkel will meet at 1630 GMT/1230 EDT this afternoon
with Juncker, Lagarde, Barroso, Van Rompuy and an official from the ECB.
They will all meet with Papandreou at 1900 GMT/1500 EDT.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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