CANNES, France — Greek Prime Minister George Papandreou flew to the chic French resort of Cannes on Wednesday to explain to his furious European colleagues why he was holding a surprise referendum on a bailout deal that took them all months to work out.
Papandreou's pledge to let the Greek people themselves vote has riled financial markets and threatens to derail an entire European debt crisis plan that's not even a week old. Observers called it a "back me or sack me" move to make sure the Greek public will support the severe austerity measures looming ahead.
But a "no" vote in the referendum would have enormous consequences not just for Greece but for the rest of Europe. It could lead to a disorderly Greek default, force Greece out of the 17-nation eurozone, topple many fragile European banks and send the global economy spinning back into recession.
With this in mind, French President Nicolas Sarkozy, German Chancellor Angela Merkel and top European Union gathered at the Palais des Festivals, site of Cannes' famous film festival, for private talks ahead of their meeting with Papandreou.
Even scheduling the vote could scuttle a pending bailout loan Greece needs shortly to avoid default.
Eurozone finance ministers had already approved their portion of a euro8 billion ($11 billion) aid installment to Greece, but eurozone officials said Wednesday that the payout was conditional on additional austerity measures that Greece committed to as part of the new rescue deal.
"If these (reforms) are now being put in question in December by the referendum then we have a completely different situation," said one eurozone official, who was speaking on condition of anonymity because of the sensitivity of the issue.
The wait is also ramping up the pressure on Italy, the eurozone's third-largest economy, whose debts are enormous but which is considered too big to be bailed out. The yield on Italy's ten-year bonds — a gauge of market concern — rose to 6.19 percent Wednesday, uncomfortably close to the levels that prompted Greece, Portugal and Ireland to seek bailouts.
The very fates of some of the G-20 leaders and their own economies could well hinge on how Papandreou's gamble works out. Sarkozy and President Barack Obama both face potentially tough re-election battles within the year.
Sarkozy had hoped the meeting of leaders from the Group of 20 industrial and developing nations, which runs Thursday and Friday, was going to be Europe's opportunity to assure the rest of the world that a comprehensive plan to deal with the European debt crisis had finally been reached after nearly two years of half-measures, indecision and procrastination.
Papandreou's gambit ended that lofty ambition.
Sarkozy and Merkel summoned Papandreou to the meeting, continuing to insist that the euro130 billion ($177 billion) bailout deal for Greece thrashed out last week remains "the only possible way" to sort out Europe's debt problem.
"Germany and the entire international community are striving to deal in solidarity and responsibly with Greece, but there is also a responsibility on Greece's part toward its European partners," Merkel's spokesman, Steffen Seibert, said in Berlin. "Countries in Europe — particularly the countries in the eurozone — are so closely integrated that every serious decision in one capital has effects on the other countries."
The Oct. 27 bailout deal would require banks holding Greek government bonds to accept 50 percent losses, while the other eurozone nations and the IMF would provide Greece with about $140 billion more in rescue loans. Greece has been relying on bailout loans since May 2010 to avoid bankruptcy.
The head of the global banking lobby that negotiated the debt reduction deal pressured the Greeks to accept the deal.
"It is important for the Greek people to understand that the hardships of the last 18 months are more likely to moderate with the package than in absence of it," said Charles Dallara, managing director of the Institute of International Finance.
Papandreou arrived just hours after winning the support of his Cabinet in a marathon meeting. Some 20 months of harsh austerity have angered most Greeks, with unions staging a seemingly unending wave of strikes and protest marches, many of which have degenerated into riots. The prime minister says he hopes the referendum will lock a disgruntled nation into continuing with its reforms, widely seen as the only way to avoid a Greek bankruptcy.
EU Commission President Jose Manuel Barroso warned that a failure by Greeks to stick to last week's agreement would have unknown consequences.
"Without (the deal)..., the conditions for Greek citizens would become much more painful," Barroso said.
Papandreou will try to convince his European peers the referendum is needed. He said it "will be a clear mandate, and a clear message within and outside of Greece, about our European course and our participation in the euro."
However, some of his governing Socialist lawmakers revolted against the vote, and his government faces a confidence vote Friday with only a two-seat majority in parliament.
Irish Finance Minister Michael Noonan said a quick referendum is the only way — other than early elections — to limit the damage, a sentiment sure to be echoed by Sarkozy and Merkel.
"If we had to go through Christmas and the New Year waiting for the Greeks to make a decision, it would make things even more chaotic," Noonan said.
Greek Interior Minister Haris Kastanidis said Wednesday that the referendum could be held in December.
Already, the uncertainty surrounding the referendum was causing delays in the euro rescue plan.
The head of Germany's banking association, Michael Kemmer, said a planned bond swap in which banks will take a voluntary 50 percent cut in their Greek debt holdings will have to wait until after any referendum. Kemmer says banks are standing by the deal.
Meanwhile, the European Financial Stability Facility, the eurozone bailout fund that finances large parts of the rescue loans for Ireland and Portugal, on Wednesday had to delay a euro3 billion bond issue for Ireland because of the current "market environment," said spokesman Christof Roche. Roche added the bond issue would go ahead, but not this week.