CANNES, France—Europe's leaders, making plain that they've reached the end of their patience with Greece, demanded that the beleaguered nation declare whether it wanted to remain in the euro currency union—or risk going it alone in a dramatic secession.
WSJ's Stephen Fidler reports Greek Prime Minister George Papandreou has indicated he is standing by his decision to hold a referendum on the debt rescue agreement reached by euro zone countries last week. Photo: Reuters/John Kolesidis
"Does Greece want to remain part of the euro zone or not," German Chancellor Angela Merkel said. "That is the question the Greek people must now answer."
The extraordinary rupture with the rest of Europe—whose leaders have insisted for months that an exit from the currency union is simply inconceivable—follows Greek Prime Minister George Papandreou's stunning decision Monday to call a referendum on his country's bailout.
Given the deep unpopularity of the budget-cutting measures that have accompanied the bailout, a "no" vote is a real possibility. That could send Greece, and possibly the euro zone itself, into chaos.
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Mr. Papandreou said the referendum could be held Dec. 4 or 5 at the earliest, French President Nicolas Sarkozy and Ms. Merkel said. Greek Parliament must vote on whether the referendum is held.
World leaders are gathering in this Riviera city, more accustomed to movie stars than motorcades, for the annual summit of the Group of 20 large developing and industrialized nations.
But the deliberations of the G-20 are now a sideshow to the Greek main event. In a series of hurriedly scheduled meetings, Europe's top powers huddled to plot their strategy for responding to the new uncertainty posed by Greece and to dress down the Greek prime minister.
Wednesday evening, before the official kick-off of the G-20 summit, French President Nicolas Sarkozy, Ms. Merkel, International Monetary Fund chief Christine Lagarde and the two top officials of the European Union, José Manuel Barroso and Herman Van Rompuy, met in a strategy session. In a phone call earlier in the day, Mr. Barroso told Mr. Papandreou that the referendum call threatened his country's lifeline of aid.
Later in the evening, Mr. Papandreou arrived to join them. He walked alone into the Palais des Festivals, near handprints in concrete of the building's usual visitors--Meg Ryan, Angelina Jolie and Catherine Deneuve.
After his meeting, it appeared the European leaders had scored one victory by pulling the referendum forward to early December. Greek officials had earlier signaled that it would be held in January, after the completion of negotiations on a new Greek bailout. Instead, there seems to be agreement on an earlier referendum. If successful, it would clear the way for a broad mandate to continue pressing cuts on Greece.
Europe had hoped this G-20 summit would have been a chance to demonstrate to the rest of the world that it has its debt crisis under control. An all-night euro-zone meeting just last week had fashioned a "comprehensive" plan to aid Greece, bolster the bloc's bailout fund and recapitalize the region's banks. That is now in tatters, and the image Europe is presenting is one of more confusion and uncertainty than ever.
That is particularly damaging considering how much Europe now needs the rest of the world. Voters in Germany and other strong countries in the euro zone's north have insisted they will provide no more money to propping up Greece and the rest of the periphery.
Thus the European Union is turning to China and other emerging countries with surplus cash. Mr. Sarkozy held a dinner with Chinese premier Hu Jintao Wednesday; no specific commitments emerged from that meeting, and the Chinese have said they want more detail and clarity from Europe on its plans.
Mr. Papandreou stunned Europe and financial markets this week by calling for a plebiscite on the latest, €130 billion ($178 billion) rescue package for Greece, which is tied to deeper austerity policies in the economically suffering country as well as the restructuring of Greek bonds.
Analysts say the referendum idea was a Hail Mary pass by an increasingly friendless premier, aimed at gaining a popular mandate for his overhauls of the Greek state and economy and putting opponents on the spot.
But if voters spurn the bailout deal, Greece could face national bankruptcy and exit from the euro, while leaving Europe confronting an almighty financial panic and an economic slump.
The enormous stakes, and the high risk of a "no" vote amid Greeks' anger about steep government spending cuts and tax hikes, have triggered a revolt by some lawmakers in Mr. Papandreou's ruling Socialist party.
On Wednesday it appeared he might muster enough votes to scrape through a vote of confidence in parliament set for Friday. Defeat in the confidence vote would likely trigger elections or the formation of a national-unity government under a new leader.
But even if Mr. Papandreou survives in office, he may lack enough lawmakers' support to stage the referendum. Although he won his cabinet's backing to propose a referendum on Tuesday night, parliament must approve the proposal. Mr. Papandreou could struggle on as prime minister even if his referendum idea is defeated by his own lawmakers, but his authority would be severely damaged, and analysts say a change of leadership could soon follow.
Greece is on the edge, and it is fast running out of cash.
Money is being supplied by the EU and the IMF under a €110 billion program agreed to last year. That aid is distributed in quarterly tranches, and the next tranche was expected to be paid imminently.
Three Tense Days
Some key events in the euro zone this week
Wednesday: Sarkozy, Merkel, IMF's Lagarde, Eurogroup's Juncker and EU officials meet with Greek Premier Papandreou and Finance Minister Venizelos.
Thursday: G-20 summit starts; Sarkozy-Obama bilateral talks; Merkel-Obama bilateral talks
Friday: Greek no-confidence vote; summit ends.
Sources: French presidency of G-20; President Obama's schedule
Getting Ready for the G-20
Michel Euler/Associated Press French President Nicolas Sarkozy spoke with German Chancellor Angela Merkel as they arrived for the G-20 summit in Cannes, France, on Wednesday.
But that was before the referendum call, and several officials said even that payment was contingent on a resolution to the political crisis.
Failure to make the next aid payment, valued at some €8 billion ($11 billion), would likely mean the country running out of money in December, officials said, potentially causing an unplanned default on bonds that come due that month.
A spokesman for the German Finance Ministry said Greece doesn't need urgent bailout payments now and won't require the next chunk of aid until mid-December.
"From all that we hear out of Greece, there is no acute payment need until around mid-December," German finance ministry spokesman Martin Kotthaus told a regular government press conference. That gives time "to take a concrete look as to how we're proceeding."
A senior Greek government official also said Wednesday that the government has sufficient cash to cover its operating needs until December. The key date for Greece is Dec. 19, when a €1.17 billion benchmark government bond comes due. If that isn't paid on time, Greece will likely be called into default by its creditors. Other bonds issued by the government in settlement of previous late payments to commercial creditors also mature this month and next.
"I hope that this whole thing can be closed and completed before mid-December," said IMF chief Christine Lagarde after Wednesday night's meeting. "I think it's important from a cash point of view."
—Costas Paris, Alkman Granitsas, William Boston, Stephen Fidler and William Horobin contributed to this article. 
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