French President Nicolas Sarkozy defended the hard-fought European bailout plan for Greece as he spoke to the media Tuesday at the Elysee Palace in Paris.
When Greece announced plans to put a hard-won bailout package to the test in a popular referendum, the news went down like a lead balloon in European capitals and started a new round of panic on global markets.
Tuesday's blow also came days before a meeting of the world's top economies at a G-20 summit in France, where President Nicolas Sarkozy is scrambling to repair the damage.
Starting From Scratch
Europe had hoped to go into Thursday's G-20 with a solid and finalized eurozone bailout package for Greece — the one agreed upon in an all-night session in Brussels less than a week ago. Sarkozy, who is hosting the Cannes summit, had hoped to be able to move on to broader global concerns about exchange rates and financial regulation. But now, European leaders seem to be starting from square one, dealing with a country that's not even in the G-20 .
Sarkozy and his eurozone partner, German Chancellor Angela Merkel, conferred by telephone Wednesday. The French president also called an emergency Cabinet meeting and then spoke to the media from the steps of the Elysee Palace in Paris.
"This announcement of a referendum surprised all of Europe," Sarkozy said. "France wants to remind Greece that the unanimously adopted plan last Thursday of 17 eurozone members is the only way to resolve Greek debt problems. Giving the people the chance to express themselves is always legitimate, but the solidarity of the whole eurozone can only be sustained if everyone does what they are supposed to do."
He and Merkel, who are said to be furious, scheduled two pre-summit emergency meetings Wednesday. The first will involve officials from the European Union and the International Monetary Fund. The second meeting will be with Greek Prime Minister George Papandreou to, as Sarkozy put it, examine the conditions in which the commitments made will be kept.
Greece's actions are "a cold shoulder for Sarkozy, and he has been weakened by it," said Frederic Delpeche, a commentator at a French cable news network. "He thought he would be able to show off this ambitious plan. Now they're trying to pick up the pieces and glue the thing back together in last-minute meetings."
World Markets Won't Wait
Analysts say markets won't wait for another round of negotiations or arm-twisting — and certainly not for a referendum. European markets were mostly flat Wednesday after plummeting the day before.
Jim Hertling of Bloomberg News in Paris said Greece must be fixed or the damage will likely spread to the next trouble spot.
"Even when the markets rallied last week, Italian bonds did not," he noted. "Everybody is laser-focused on Italy, so you've got the immediate Greek problem, and the next exit on the debt-crisis highway is Italy."
Some financial experts say it might now be just a matter of time before Greece drops the euro as its currency. Rainer Bruederle, leader of the German Free Democratic Party, which is part of Merkel's governing coalition, said it seems as though Papandreou is trying to "wriggle out of what was agreed" by all EU countries.
"Other countries are making considerable sacrifices for decades of mismanagement and poor leadership in Greece," Bruederle said on German radio.
Applause From France's Opposition Parties
But opposition figures in France seemed delighted by news of the referendum, calling it a victory for the people. Desperate to beat Sarkozy in the presidential election next May, they hailed Greek resistance to its European managers.
"They've only been thinking about taking care of the euro and not the Greek people — so they're getting what they paid for," said Jean-Luc Melenchon, head of a coalition of far-left parties.
The far right also spun the news to fit its views.
Jean-Marie Le Pen, who led the French National Front party for 30 years, said there needed to be an orderly exit from the euro before it crumbles and takes all the European economies down with it.
For his part, Papandreou said he needs the support of the Greek people to continue with the painful austerity measures that its creditors demand. Merkel and Sarkozy will likely put pressure on him to hold any referendum as quickly as possible, and end the chaos and uncertainty over Greece once and for all.