Greece’s government was on the brink of collapse on Thursday, casting doubt on plans to hold a referendum on staying in the euro zone, as European leaders contemplated a Greek exit to preserve their single currency.
France’s biggest listed bank BNP Paribas also slashed its exposure to Greece, Italy and Spain by more than €12 billion ($17 billion) in a bid to protect its balance sheet.
Prime Minister George Papandreou chaired an emergency Cabinet meeting in Athens, with his finance minister in revolt against a plebiscite, after the leaders of France and Germany gave Greeks an ultimatum to make up their minds.
French President Nicolas Sarkozy and German Chancellor Angela Merkel told Papandreou at a torrid meeting in Cannes that Athens would not receive a cent more in aid until it votes to meet its commitments to the euro zone. Greece was due a vital €8 billion instalment this month. Meanwhile, a government source said Greece has enough cash to last until mid-December.
Later, Merkel told a midnight news conference that while she would prefer to stabilise the euro with Greece as a member, the top priority was saving the euro, not rescuing the Greeks.
Emerging giants Brazil, Russia, India, China and South Africa also met on Thursday to hammer out a common position ahead of the G20 summit.
US President Barack Obama also said that the most important task for world leaders is to resolve the European financial crisis.
The political chaos in Greece and uncertainty sent stocks and commodity prices lower in Asia, and fuelled a rush into safe-haven German bonds. Spanish 5-year borrowing costs rose to the highest since 2008 and France also paid more to sell bonds at auction.
The chairman of eurozone finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, said policymakers were working on possible scenarios for a Greek exit. “We are working on the subject of how to ensure there is not a disaster for the people in Germany, Luxembourg, the eurozone. We are absolutely prepared for the situation.”
France’s Europe minister, Jean Leonetti, said the euro could survive without Greece. “Greece is something we can get over, something we can live without.”