CANNES, France – President Barack Obama and world leaders begin two days of pivotal meetings here today, their gathering overshadowed by an unfolding Greek drama.
Hours before Obama boarded a flight to Cannes for the G-20 meeting of leaders from the globe’s top 20 economies, French President Nicolas Sarkozy and German Chancellor Angela Merkel held a tense meeting Wednesday night with Greek Prime Minister George Papandreou.
Papandreou stunned European Union leaders and financial markets with Monday’s surprise announcement that Greece would hold a referendum on an EU bailout deal, which was announced to great fanfare last week after marathon negotiations to prevent a disorderly default on Greek debt that could spark global financial panic.
In a news conference late Wednesday, the two leaders said they told Papandreou that there would be no further European Union aid to Greece until after the referendum, and that the vote by Greeks is expected to happen by Dec. 4 or 5. That freezes a planned $11 billion aid payment. If Greeks vote no, Greece would be declared bankrupt by EU member states and probably lose the right to use the euro, Europe’s common currency. If they vote yes, they retain their EU membership but must accept a fiscal austerity plan that will squeeze their economy and lifestyles for years.
“It poses the basic question: Does Greece wish to remain in the eurozone? Yes or no?” Merkel said. “We wish to remain with Greece, but a stable euro is the main objective.”
Asked if Germany and France were exercising “brutal” leadership in pressing Greece, an angry Sarkozy shot back, “You think we’re doing this for pleasure? We have enough responsibilities in our own economies.”
The head of the trade group for large global banks holding Greek debt voiced sympathy with the desire to have Greeks vote on their rescue package.
“It’s clear that many in Greece feel like they haven’t been in control over their own fate,” Charles Dallara, head of the Institute of International Finance, told reporters Wednesday.
Greeks have a “historic opportunity,” he said, suggesting the deal is the least-bad option since banks will restructure debt equal to about 45 percent of the Greek economy. “It means that the path of adjustment that lies ahead will be less austere and less onerous,” he said.
The Greek drama will surely dominate the G-20 meeting between Obama, EU leaders and other heads of state gathering in this picturesque French Mediterranean city for their summit, which last week had been expected to feel like a victory lap in celebration of the EU’s apparent resolution of the Greek debt crisis, which has shadowed global finance for 18 months.
Obama was set to arrive in Cannes today for his fifth and arguably toughest G-20 summit as he and European leaders struggle anew to develop a fix for the cratering Greek economy and prevent financial panic from spilling over its borders and across the Atlantic.
His first appointments after landing will be face-to-face separate meetings with host Sarkozy and Merkel, followed by a lunch with G-20 leaders and working sessions.
“This is really crunch time. The stakes could not be higher,” said Heather Conley, director of the Europe program at the Center for Strategic and International Studies, a foreign policy think tank in Washington.
Papandreou faces a critical confidence vote Friday in the Greek parliament, the outcome of which seemed unclear late Wednesday.
Greece won’t be this week’s only G-20 agenda item. Last week’s EU summit left details to be worked out in the debt-relief deal, including where the money will come from for the strengthened bailout fund, the European Financial Stability Facility.
With the U.S. and EU economies hobbled by slow growth and mounting debts, European leaders are looking to emerging nations, led by Brazil and China, to help seed the $1.4 trillion rescue fund.