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G20 leaders to meet amid Greek fears G20 leaders to meet amid Greek fears
(about 1 hour later)
The G20 leaders are due to meet in France amid concerns the eurozone's debt crisis may be worsening. Greece's finance minister has said a planned referendum on its latest bailout package must not be about the country's future in the eurozone.
On Wednesday, eurozone leaders withheld the latest 8bn euro (£7bn) rescue loans for Greece until after its referendum on the package. Evangelos Venizelos also said the next 8bn-euro (£7bn) tranche of bailout funds should be released immediately.
At the same time, China refused to commit to the European Financial Stability Fund (EFSF) seeking more clarity on the situation in Greece. His comments are in defiance of the Greek prime minister and eurozone leaders, who tied the referendum to whether Greece remains in the eurozone.
The referendum is expected to take place on 4 or 5 December. The issue is likely to dominate Thursday's G20 meeting in Cannes.
German Chancellor Angela Merkel has said the vote was over whether Greece wanted to stay in the eurozone. Mr Venizelos issued a statement in the early hours of Thursday after attending crisis talks with German Chancellor Angela Merkel and French President Nicolas Sarkozy.
US President Barack Obama is scheduled to hold a meeting with the French President Nicolas Sarkozy on Thursday, at which the two leaders are expected to discuss the eurozone crisis. "Greece's position within the euro area is a historic conquest of the country that cannot be put in doubt. This achievement by the Greek people cannot depend on a referendum," he said.
Meanwhile, href="/news/uk-politics-15567658" title="UK 'ready to back IMF bailouts' " >it has emerged that the UK is ready to support an increase in overall International Monetary Fund (IMF) funding for shoring up the euro. Earlier, Greece's Prime Minister George Papandreou said that his shock decision to call a national vote on the bailout package was effectively a decision on the country remaining part of the euro bloc.
Mrs Merkel and Mr Sarkozy had made clear that Athens would not receive its next 8bn euros in emergency funds until the referendum had passed.
It is likely that a referendum will be held on 4 December.
Eurozone leaders fear that should Greece deliver a "no" vote it may plunge the country into a disorderly default and spread financial contagion to Italy and Spain.
"Our Greek friends must decide whether they want to continue the journey with us," Mr Sarkozy told reporters at a joint news conference with Mrs Merkel after the crisis talks with Mr Papandreou.
Obama meeting
Eurozone leaders had hoped to present a definitive action plan for Greece at the G20 meeting of the world's biggest economies.
A key part of the plan was to encourage wealthy emerging economies to contribute to expanding the European Financial Stability Fund (EFSF).
However, China made clear on Thursday that it would not commit to the EFSF until there was more clarity on the situation in Greece.
US President Barack Obama is scheduled to hold a meeting with Mr Sarkozy on Thursday when the eurozone crisis is expected to dominate discussions.
The US administration has made it clear in recent weeks that it wants the eurozone to put its house in order urgently.
'Disorderly default''Disorderly default'
Greece's Prime Minister George Papandreou has said that the referendum is effectively a decision on whether to stay within the single currency. Mr Papandreou's decision earlier this week to hold a referendum angered other eurozone leaders, who fear their rescue plans for the euro bloc are now unravelling.
"I do believe there is a wide consensus among the Greek people... and the Greek people will speak soon," he said.
There has been widespread anger in Greece about the austerity measures such as public sector pay cuts and tax rises that have been demanded by the eurozone leaders as part of the new bailout agreement.There has been widespread anger in Greece about the austerity measures such as public sector pay cuts and tax rises that have been demanded by the eurozone leaders as part of the new bailout agreement.
The fear is that people may vote against the deal, a move that many feel may jeopardise efforts to resolve the debt crisis.The fear is that people may vote against the deal, a move that many feel may jeopardise efforts to resolve the debt crisis.
"The concerns about a disorderly default have risen," Donald Hanna of Fortress Investment Group told the BBC."The concerns about a disorderly default have risen," Donald Hanna of Fortress Investment Group told the BBC.
'Must remain stable' Stability sought
Many economists also fear that if Greece were to exit the euro, it could lead to financial contagion, as investors and ordinary bank depositors in other eurozone countries may fear that their own government will follow suit.Many economists also fear that if Greece were to exit the euro, it could lead to financial contagion, as investors and ordinary bank depositors in other eurozone countries may fear that their own government will follow suit.
"Portugal and Ireland may follow Greece and you could also see a rise in the cost of borrowing for economies such as Italy," said Mr Hanna."Portugal and Ireland may follow Greece and you could also see a rise in the cost of borrowing for economies such as Italy," said Mr Hanna.
Mr Hanna explained that if Greece opted out of the eurozone, it will have to introduce its own currency which may depreciate hugely against the euro.
Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule. Glossary in full		 Crisis jargon buster Use the dropdown for easy-to-understand explanations of key financial terms:
AAA-rating The best credit rating that can be given to a borrower's debts, indicating that the risk of borrowing defaulting is miniscule. Glossary in full
Mr Hanna explained that if Greece opted out of the eurozone, it will have to introduce its own currency which may depreciate hugely against the euro.
Any such move, he warned will see the value of euro debt increase and may result in the bankruptcy of firms exposed to it.Any such move, he warned will see the value of euro debt increase and may result in the bankruptcy of firms exposed to it.
Chancellor Merkel said the eurozone leaders wanted Greece to remain a part of the group, but insisted that the Greek government's decisions were threatening to destabilise the region. Mrs Merkel said the eurozone leaders wanted Greece to remain a part of the group, but insisted that the Greek government's decisions were threatening to destabilise the region.
"The euro as a whole must remain stable," Ms Merkel said. "We would prefer to ensure this with Greece rather than without it. But the top priority is stability.""The euro as a whole must remain stable," Ms Merkel said. "We would prefer to ensure this with Greece rather than without it. But the top priority is stability."
President Sarkozy added: "There are rules that form the stability pact. It's up to Greece to decide if they want to continue the adventure with us". Mr Sarkozy added: "There are rules that form the stability pact. It's up to Greece to decide if they want to continue the adventure with us".
Bigger troubleBigger trouble
While the eurozone debt crisis initially started with the smaller economies such as those of Greece and the Republic of Ireland, the fear is that if not controlled in time, it may affect bigger economies such as Italy and Spain. While the eurozone debt crisis initially started with the smaller economies such as those of Greece and the Irish Republic, the fear is that if not controlled in time, it may affect bigger economies such as Italy and Spain.
That in turn may hurt growth in the region and derail an already fragile global economic recovery.That in turn may hurt growth in the region and derail an already fragile global economic recovery.
Italy, whose debt levels are significantly higher than those of Greece, has hundreds of billions of euros in debts coming due for repayment over the next 12 months.Italy, whose debt levels are significantly higher than those of Greece, has hundreds of billions of euros in debts coming due for repayment over the next 12 months.
However, it is finding it increasingly difficult to borrow money in the international financial markets.However, it is finding it increasingly difficult to borrow money in the international financial markets.
The country's one-year cost of borrowing has risen to 5.1%, its highest since joining the euro, and far above the mere 0.3% interest rate that Germany must pay.The country's one-year cost of borrowing has risen to 5.1%, its highest since joining the euro, and far above the mere 0.3% interest rate that Germany must pay.
The Italian cabinet agreed to new austerity measures demanded by other European governments at an emergency meeting on Wednesday evening, in a bid to reassure them that it was doing its part to cut its debt levels.The Italian cabinet agreed to new austerity measures demanded by other European governments at an emergency meeting on Wednesday evening, in a bid to reassure them that it was doing its part to cut its debt levels.