Greece and the euro: A game-changing summit after all

  • 3 November 2011
  • From the section Business

Last week's European summit was supposed to be the game-changer, but the real change in the game might have happened on Wednesday night here in Cannes, as a direct result of the Greek prime minister's shock decision to call a referendum.

The change is that for President Sarkozy and Chancellor Merkel, keeping Greece in the euro is no longer priority number one. And a eurozone without Greece is no longer necessarily the worst outcome.

Just a few months ago, when Greece came under pressure, these two leaders were making joint statements saying "the future of Greece is in the euro." Not now.

To a packed hall of journalists here in Cannes, the French president and the German chancellor have now told the world that Greece could stay in the euro - but it had to want it.

If the Greeks are going to get a referendum - President Sarkozy said - that is the question they ought to be asked.

France and the rest of the eurozone have done everything they can to help Greece, but "there are rules" to this common European currency.

Greece has to decide whether it wants to follow them.

The leaders made no effort to hide their frustration that the Prime Minister had taken this step, "unilaterally", "without consultation", and only days after a European summit that was supposed to have put the eurozone on a better path.

The hard news that came out of their statement was that there would definitely be no disbursement of the next slice of bailout money until the referendum question is resolved.

And the vote itself will be held on 4 December - earlier than initially suggested, and a week before the Greeks have to make a crucial €12bn bond payment.

But there was another crucial message in tonight's joint appearance: France and Germany want Greece in the eurozone but they don't want it at any price.

Put it another way: they don't want to keep Greece in the euro if the price of its membership is going to be never-ending drama and uncertainty.

Of course, you can see all this as scare tactics: a message to the Greeks that they should not expect to hold the rest of Europe to ransom.

That is certainly a good part of the story. But this feels like more than brinkmanship. There is a weary sense among officials here in Cannes that Greece is reaching the end of the road, and the priority now must be to contain the damage.

That is why the talk is all of accelerating the creation of the European Stability Mechanism, the successor to the EFSF. And of additional IMF funds to backstop the entire system.

If and when it happens, that new money won't be for Greece: it will be there to persuade the financial markets, finally, that the resources are there to protect everyone else from any Greek fallout.

It will be interesting to see how the financial markets respond tomorrow.

Since Monday we've been talking about the Greek prime minister's "great gamble" with the referendum. The French and German leaders have just made a great gamble of their own.