By Peter Spiegel and Hugh Carnegy in Cannes, FTEarlier on Wednesday, the eurozone rescue fund, the European Financial Stability Facility, was forced to postpone a €3bn, 10-year bond issue for the bail-out of Ireland because of the deep uncertainty on financial markets sparked by the Greek announcement.
Markets remained volatile with the European Central Bank forced to intervene in the Italian bond markets to stabilise prices. The ECB bought about €2bn of Italian debt on Wednesday after buying as much as €5bn on Tuesday, traders said.
Italian 10-year benchmark bond yields, however, were steady at 6.19 per cent, below the level of 6.5 per cent, which markets think are unsustainable.
Mr Papandreou was summoned to an emergency meeting in Cannes on the eve of Thursday’s G20 gathering of the world’s leading economies in a bid to clarify the situation before the summit got under way.
The Greek prime minister wrote to European Union leaders on Tuesday detailing plans to renegotiate parts of the Brussels bail-out deal, which would then be put to a referendum, the senior official said.
“Nobody is going to negotiate with the threat of a referendum,” the official said. “They cannot expect people to put money there. We came to an agreement and two days afterwards they say they can’t implement the agreement. That is not serious.”
The EU portion of the €8bn tranche of European and International Monetary Fund aid was signed off by eurozone finance ministers less than two weeks ago but has not yet been paid. Greece has to make a €12bn bond repayment on December 11.
“If they want to have a referendum, that’s of course their right, and we very much respect democracy,” the senior official said. “But in that case, they probably should not expect the others to pay out money before they get the answer.”
Mr Sarkozy and Ms Merkel are demanding that the Greek government sticks to its commitments made at the Brussels summit. If a referendum goes ahead they want it held as quickly as possible and to be framed as a choice over Greece’s continued membership of the eurozone, not on the specific issue of the rescue plan.
French prime minister Francois Fillon told the National Assembly in Paris: “The terms of the referendum must be clear … Greece must quickly and unambiguously choose whether or not they want to retain their place in the eurozone.”
Mr Papandreou, under severe political pressure at home over the unpopularity of the austerity measures demanded by the rescue plan, won backing for a referendum from his government early on Wednesday, which is likely to be held in mid-December.
People close to the ruling Pasok party indicated that Mr Papandreou wanted a vote on the rescue package but constitutional lawyers said it would have to be on a broader national issue, indicating that it could be centred on support for Greece’s EU and eurozone membership.
Additional reporting by David Oakley in London and Kerin Hope in Athens
