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Greek Prime Minister George Papandreou was flying to the chic French Riviera resort of Cannes on Wednesday to explain himself to European leaders furious over his surprise referendum on a bailout deal that took them months to work out.
The pledge to hold a referendum has riled financial markets and threatens to derail a debt crisis plan that's not even a week old. A "no" vote in the referendum could lead to a disorderly Greek default and force Greece from the euro, toppling fragile banks and sending the global economy spinning back into recession.
Even scheduling the vote could scuttle two large pending payouts of bailout money Greece needs to avoid default. And the wait is ramping up the pressure on Italy, the eurozone's third-largest economy, whose debts are enormous but which is considered too big to be bailed out.
The fates of some of the G20 leaders could well hinge on how Papandreou's gamble works out, and hence how their own economies fare. For example, French President Nicolas Sarkozy and U.S. President Barack Obama both face potentially tough re-election battles within the year.
Sarkozy had hoped that the meeting of leaders from the Group of 20 industrial and developing nations, which runs Thursday and Friday, was going to be Europe's opportunity to tell the rest of the world that a comprehensive plan to deal with the debt crisis had finally been reached after nearly two years of half-measures, indecision and procrastination.
Papandreou's gambit put an end to that lofty ambition.
Sarkozy, who along with German Chancellor Angela Merkel, summoned Papandreou to the meeting on the Cote d'Azur, will continue to insist that the euro130 billion ($177 billion) deal thrashed out last week remains "the only possible way" to sort out Europe's Greek problem.
"Germany and the entire international community are striving to deal in solidarity and responsibly with Greece, but there is also a responsibility on Greece's part toward its European partners," German Chancellor Angela Merkel's spokesman, Steffen Seibert, said in Berlin.
"Countries in Europe - particularly the countries in the eurozone - are so closely integrated that every serious decision in one capital has effects on the other countries."
Papandreou meets his peers just hours after winning the support of his Cabinet in a marathon meeting. He has said his hope is that a referendum will lock a restless and disgruntled country into continuing with its reforms that are widely seen as necessary if Greece is to have a sustainable future. Some 20 months of harsh austerity have angered most Greeks, with unions staging a seemingly unending wave of strikes and protest marches many of which have degenerated into riots.
Papandreou said a referendum "will be a clear mandate, and a clear message within and outside of Greece, about our European course and our participation in the euro."
At one stage on Tuesday, following a rebellion among his governing Socialist lawmakers, Papandreou's government looked like it was in danger. And he's not out of the woods yet: His government faces a confidence vote on Friday and his Socialists only have a two-seat majority.
Irish Finance Minister Michael Noonan said a quick referendum is the only way - other than early elections - to limit the damage.
"If we had to go through Christmas and the New Year waiting for the Greeks to make a decision, it would make things even more chaotic," Noonan said.
Greek Interior Minister Haris Kastanidis said Wednesday that the referendum could be held in December.
Already, the uncertainty surrounding the referendum is causing a delay in implementing the euro rescue plan.
The head of Germany's banking association, Michael Kemmer, said the planned bond swap by which banks will take a voluntary 50 percent cut in their Greek debt holdings will have to wait until after the referendum, if it takes place.
Kemmer says banks stand by the deal, but that the planned exchange can only happen when the Greek government makes a formal offer, and that doesn't make sense until after the referendum results are in.
The Oct. 27 bailout deal would require banks holding Greek government bonds to accept 50 percent losses and provide Greece with about $140 billion in rescue loans from European nations and the IMF. Greece has been relying on bailout loans since May 2010 to avoid bankruptcy.
"I believe that the second aid package for Greece, which will now be finalized, offers the best guarantee for Greece to be able to recover in a clear process and get back on its feet independently," German finance minister Wolfgang Schaeuble said in an interview with the Financial Times Deutschland newspaper. "I assume that Greece will respect and fulfill the agreements and commitments that it made."
This program aired on November 2, 2011. The audio for this program is not available.
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