EU holds Greece crisis talks on eve of G20 meet

(CANNES) - European Union leaders held crisis talks on the eve of the G20 summit Wednesday in response to Greece's threat to delay or derail a eurozone bail-out package by putting it to a referendum.

French President Nicolas Sarkozy, German Chancellor Angela Merkel, senior European Union leaders and IMF director Christine Lagarde met in Cannes to prepare an ultimatum for Greek Prime Minister George Papandreou.

The Greek leader was due in the French resort later Wednesday to receive his dressing down, even as lawmakers back in Athens began a confidence debate that could see him turfed out of office by Friday.

Sarkozy had hoped to use Thursday's G20 summit to relaunch a drive to reform global finance, but the meeting of the world's most powerful economies will now be dominated by the eurozone debt debacle.

Leaders fear the reignited crisis now poses the main threat of tipping the global economy back into recession, and Washington and China are expected to lead calls for Europe to put its house in order.

The referendum shock has raised the spectre of the country leaving the eurozone altogether if Greek voters reject the EU rescue terms, and it has increased the threat posed to Italy by its own debt mountain.

"For us, it is actions that matter. We agreed a programme with Greece last week. And from the EU side, at least for Germany, we want to implement this programme," Merkel told reporters before flying to the French Riviera.

"For this, we need clarity and that's what these talks tonight are about."

After the first talks, Luxembourg's Prime Minister and eurozone chairman Jean-Claude Juncker said: "We took a decision last week as 17 (member states), we can't allow anyone to disassociate himself from that decision."

A senior European official said at the talks the leaders agreed they would push Papandreou to hold the referendum as soon as possible and on the question of Greece's continued membership in the eurozone.

"You have to call a spade a spade, that this referendum will raise the question of Greece's membership in the eurozone," said the official.

The leaders also discussed whether the next 8.0 billion euros in rescue loans, which Greece needs within weeks to avoid defaulting on its debts or even failing to pay government salaries, could be released.

Several European officials confirmed earlier that the referendum plan had effectively put the loans on hold.

Europe was under intense pressure from its G20 partners to contain its debt crisis, and last week cobbled together a deal to wipe 100 billion euros off Greece's debt, strengthen banks and double the firepower of its bailout fund.

However the Greek referendum reignited the crisis, as markets were spooked by the possibility that Greek voters -- bitter over enduring painful austerity measures -- could reject the deal and force a messy default.

European stock markets fell heavily on Tuesday, and Italian borrowing rates rose sharply. European equities and the euro rose moderately on Wednesday but tension on the eurozone bond market increased.

For months the eurozone has insisted that Greece leaving the eurozone is not an option, and the summit marks the first time the possibility of a country abandoning the euro has been so explicitly raised.

A recent poll indicated that most Greeks favour staying in the eurozone, despite hostility towards the tough rescue conditions.

Before setting off for France, Papandreou said: "The referendum will be a clear mandate, but also a clear message inside and outside Greece on our European course and our euro membership."

The eurozone's troubles are increasing threatening to spill outside of Europe and the OECD warned earlier this week a quick resolution was key to ensure a rebound in the world economy.

G20 members heaped further pressure on Europe.

The White House said it wanted "unanimity of purpose" to emerge from the G20 and White House spokesman Jay Carney said the situation would be a key subject.

Meanwhile, China's President Hu Jintao told the French daily Le Figaro: "China sincerely wants stability for the eurozone and the euro," but without confirming that China would participate in the EU rescue fund.