Greece plunged the eurozone back into crisis and markets into panic on Tuesday with a shock call for a referendum on a debt rescue package reached only with huge difficulty just last week.

"/> Greece plunged the eurozone back into crisis and markets into panic on Tuesday with a shock call for a referendum on a debt rescue package reached only with huge difficulty just last week.

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GREECE

Euro crisis: France insists on debt deal

Greece plunged the eurozone back into crisis and markets into panic on Tuesday with a shock call for a referendum on a debt rescue package reached only with huge difficulty just last week.

Euro crisis: France insists on debt deal
World Economic Forum

Prime Minister George Papandreou’s decision to hold a confidence vote on Friday and then a referendum on the debt deal stunned investors, angered EU leaders and left the eurozone back at square one, with Italy now under pressure just ahead of a high-profile Group of 20 summit in France.

The turmoil saw some European markets slump by 5 percent and more and pushed borrowing rates uncomfortably near record levels for Italy, which can ill afford to pay extra to raise funding given its strained finances.

French President Nicolas Sarkozy called Greece to order, insisting, in concert with Germany, that last week’s accord was the only way to solve its debt problems.

Noting that the referendum call “surprised all of Europe,” Sarkozy said “France reminds everyone that the accord adopted … unanimously by the 17 member states … is the sole possible way to resolve Greece’s debt problems.

“Giving people a voice is always legitimate but the solidarity of all the eurozone countries is not possible unless each one agrees to measures deemed necessary,” Sarkozy said.

France and Germany, he added, took the initiative to hold a meeting on Thursday before the opening of the G20 summit in Cannes, of all European institutions, the International Monetary Fund and the Greek prime minister to discuss “the conditions under which the engagements undertaken will be kept.”

The White House meanwhile said the uncertainty caused by Greek’s move showed the need for rapid implementation of the eurozone deal.

The announcement “just reinforces the notion that … the Europeans … need to elaborate further and implement rapidly the decisions they made last week,” US President Barack Obama’s spokesman Jay Carney said.

“It remains the case that the Europeans have the capacity to deal with this crisis and they need to implement the very important decisions they made last week to provide a conclusive resolution to it,” Carney added.

The latest turn in the eurozone debt saga put Italy right back in the firing line, raising fears that it could follow Greece, Ireland and Portugal in needing a bailout and that the contagion could spread even further, to Spain.

Italian stocks closed down 6.8 percent with bank shares in free fall, in the worst session since the start of the global financial crisis in 2008.

Borrowing rates also shot up to well above 6 percent, coming close to levels that most believe cannot be sustained for the long-term.

In an effort to get ahead of the debt curve, Italian Prime Minister Silvio Berlusconi promised to take “rapid” action on economic reforms, long sought by his European partners, ahead of the G20 summit.

He told German Chancellor Angela Merkel that “the Italian government is determined to introduce the measures rapidly,” his press office said.

Berlusconi had sought to ease market concern and pressure from Italy’s eurozone partners last week with promises to increase the pension age, launch a privatisation programme and reform labour laws to make firing easier.

The prime minister, who returned to Rome early from a trip to Milan as markets dropped, was due to hold talks later on Tuesday with several ministers ahead of a possible cabinet meeting this week, ANSA news agency reported.

In a brief phone call to Merkel, Papandreou told the chancellor that the referendum would “strengthen the country in the eurozone and globally” but other leaders voiced frustration and annoyance that they had not been informed of his plan at last week’s negotiations.

Commerzbank analyst Christoph Weil said many felt that the referendum call effectively left last week’s accord dead in the water, with Greece facing default and even an exit from the eurozone.

“What will happen if people say ‘No’? The risk is that the international community will turn off the supply of financing for Greece and the country will quit the euro.”

If the vote is ‘No,’ it would scupper a deal to cut Greece’s debt of more than €350 billion ($495 billion) by about €100 billion while recapitalizing the banks who will take a 50-percent loss on their holdings of Greek government debt.

The accord also includes controversial provisions to provide help for struggling eurozone states and looks forward to tighter economic and fiscal governance in the bloc, seen as vital for its future.

In a joint statement, EU president Herman Van Rompuy and European Commission president Jose Manuel Barroso said they had full trust in Greece to “honour the commitments undertaken.”

In Greece itself, however, the government appeared headed for meltdown late Tuesday as Papandreou faced defections from his party and calls for the referendum to be scrapped.

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EUROPEAN UNION

Macron outlines plans to ‘rebuild’ Europe on Greece trip

French President Emmanuel Macron sketched a plan to "rebuild" the European Union through wider democracy and public accountability at the start of a two-day visit to Greece on Thursday.

Macron outlines plans to 'rebuild' Europe on Greece trip
Macron gives a speech on Pnyx Hill in Athens. AFP
Choosing a symbol of ancient Athenian democracy — Pnyx Hill — for his speech, Macron said he intended to present fellow European leaders with a “roadmap” to fix Europe for the next decade.
   
“Our generation can choose to (do this)… we must find the strength to rebuild Europe,” said the 39-year-old centrist, making his first visit to Greece as president.
   
“We share a history and a destiny… we must defend this heritage,” Macron said, with the brightly lit Acropolis as his backdrop.
   
The proposals, which formed part of Macron's election campaign platform earlier this year, would be submitted to European citizens early next year for a six-month debate.
 
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The Macrons listen to the speech of the Greek Prime Minister on the Pnyx hill. AFP   
 
They include cross-state candidate tickets for the next European Parliament elections, scheduled for 2019, and more democratic legitimacy for the eurozone.
   
“Let us put together a eurozone parliament which would enable the creation of democratic responsibility,” the French president said.
   
At present, economically weak states such as Greece decry the powers wielded by eurozone finance ministers to determine long-term fiscal policy.
 
Their body, the Eurogroup, is not elected.
   
The former economy minister and banker argued that losing the EU would be “a form of political and historic suicide,” especially at a time when only a united bloc can protect its citizens from cross-border threats such as climate change and terrorism.
   
But also, only Europe had a tradition of respecting human rights, equality and social justice, he claimed.
 
IMF must show 'good faith' to stay on
   
Earlier Thursday, with Greek Prime Minister Alexis Tsipras at his side, Macron delighted his hosts by warning the International Monetary Fund to refrain from demanding cuts beyond those already agreed, in upcoming talks.
   
“The IMF's position should be in good faith and without added requirements,” Macron said as Greece prepares to reopen reform talks in return for another tranche of bailout cash.
   
Greece's third rescue programme, currently financially supported by EU states alone, runs to August 2018.
   
The IMF has said it will only contribute to the programme if EU creditors take further steps to lighten Greece's debt load, which has yet to happen over strenuous objections by Germany.
   
Macron on Wednesday bemoaned that the EU had to turn to outside assistance in the first place to rescue Greece in 2010, noting that this reflected a “lack of confidence” between European member states and institutions.
   
“I don't think that having the IMF supervise European programmes is a good method… the credibility and sovereignty of Europe justified doing things differently,” Macron said.
   
Macron said European rescues were not the IMF's “primary vocation” and that in Greece's case, European ministers spend an excessive amount of time agonising over growth forecasts 25 years into the future, at the global lender's behest.
   
“If you could tell me my own country's growth forecast in three years I'd be happy,” he quipped.
   
Greece, on the receiving end of two multi-billion euro rescues in which the IMF has been a part since 2010, has frequently complained of the Washington-based lender's demands for fiscal cuts and labour reform.
   
But Germany in particular has insisted on retaining the IMF, at least in a supervisory role.
 
Turkey 'essential' on migration, terror
 
Macron also had a word of caution to German Chancellor Angela Merkel, saying the EU had to avoid any sharp break with Turkey.
 
“I wish to avoid a rupture because (Turkey) is an essential partner in many crises we jointly face, specifically the migration challenge and the terrorist threat,” Macron told Kathimerini newspaper.
   
Merkel said over the weekend that she would ask the EU to call off membership talks with Turkey, adding “I don't see them ever joining”.
   
The EU and Turkey last year sealed an agreement which has helped to stem the flow of hundreds of thousands of refugees and migrants into Greece.
   
Ankara has threatened to rescind the deal at times when tensions have flared with Brussels over human rights.