–Adds Comments by Sarkozy And Merkel in Fourth And Fifth Paragraphs

CANNES, France (MNI) – The Greek referendum will be about whether
Greece is going to stay in the Eurozone, and it will be held in the
first week of December, Eurozone leaders meeting here ahead of the G-20
summit said late Wednesday night.

Speaking to reporters after meeting with his European counterparts,
Eurogroup Chairman Jean-Claude Juncker said the exact wording would be
up to the Greek government but that the basic question was whether
Greece wanted to continue using the euro.

France’s President Nicolas Sarkozy and Germany’s Chancellor Angela
Merkel, speaking at a press conference moments later, echoed Juncker’s
comments. “The referendum must be on whether Greece is to remain in the
euro,” Merkel said. Sarkozy said “it is up to the Greek people whether
to remain in the euro,” later adding that he trusted them to “make the
right choices.”

Both Sarkozy and Merkel suggested they were prepared to see Greece
leave the euro area if that is what the Greek people decided. Their
comments were in sharp contrast to the virtual unanimity of European
officials since the debt crisis began that it would be impossible for a
country to leave the Eurozone.

“We want to continue with the Greeks, but there are rules and it is
unacceptable that these rules are not followed,” Sarkozy said.

Greek Prime Minister George Papandreou, who was the last to speak,
also told reporters, “this is a question of whether we stay in the
Eurozone,” though he declined to say what the precise wording of the
referendum would be. He said he believed the referendum would be held on
December 4. Sarkozy and Merkel said it would be either December 4 or 5.

The ratcheting up of the stakes in the referendum came after
Papandreou met earlier this evening with Sarkozy, Merkel, Juncker, IMF
chief Christine Lagarde and two other top European Union officials.

French media had reported earlier in the day that Sarkozy, Merkel
and the other officials in the meeting planned to tell Papandreou that
the referendum must be held before the end of the year and must focus on
the bottom line question. They rejected the idea of holding a referendum
on the details of last week’s EU summit plan for a second Greece
bailout, which included E130 billion in new official sector money and a
50% writeoff on Greece’s privately held sovereign debt.

They reasoned that if the Greeks voted against that deal, they
would not receive any more financing from the EU or the IMF and would
ultimately be forced out of the euro area anyway. So, the thinking went,
why bother with the intermediate questions.

Juncker said Greece had “lost” an E8 billion loan tranche,
previously approved by the Eurozone finance ministers, because of the
decision to call a referendum. Whether they end up getting the money
will now depend on whether Greeks say “yes” or “no” in the referendum,
he said.

Lagarde said the IMF would decide whether to disburse its E2.2
billion share of the E8 billion tranche “as soon as the referendum is
completed and the uncertainty removed.”

Since Papandreou announced his referendum plan on Monday night, the
crisis has flared up dangerously, with markets driving down the value of
the euro and of banking stocks, while pushing borrowing costs for other
peripheral Eurozone countries — especially Italy — to new highs.

Officials said there will be a kind of mini-EU summit here Thursday
morning between the leaders of France, Germany, Italy and Spain. France
and Germany fear that with their counterparts in Rome and Madrid now in
the crosshairs of the markets, the fallout from the latest events
surrounding Greece could have dire consequences, driving them straight
in the arms of Europe’s bailout fund, the EFSF.

To avoid the scenario of a forced bailout for Spain or Italy, which
the EFSF could clearly not afford at this juncture, Sarkozy and Merkel
want to meet with their counterparts, Italian Prime Minister Silvio
Berlusconi and Spanish Premier Jose Luis Rodriguez Zapatero to try and
convince them to implement more fiscal austerity measures. Such
measures, they hope, will help keep the financial markets at bay.

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