European leaders urged Greek Prime Minister George Papandreou to swiftly spell out how he intends to stick to the terms of a bailout plan after he handed voters a veto over the week-old package. Crisis talks were under way in the French resort of Cannes on the eve of a Group of 20 summit after Papandreou was summoned by European counterparts to explain his call for a referendum that risks delaying aid the country needs to avert default. In Athens, Greek lawmakers debated a confidence motion that could bring down his government. The stewards of the euro “won’t accept” a break from last week’s agreement, Luxembourg Prime Minister Jean-Claude Juncker told reporters in Cannes. German Chancellor Angela Merkel said “we have to get to the point where we know exactly what comes next.” The confusion sowed by Papandreou threatens to unravel an Oct. 27 crisis-fighting strategy and may scupper Europe’s hopes of using the G-20 meeting as a showcase for that plan and to seek financial assistance for their efforts. The summit will open officially tomorrow with a lunch-time discussion on Greece and the euro-area debt crisis. ‘Something Meaningful’ “Investors must be forgiven for hoping that the G-20 will agree to do something meaningful at a global level to resolve the euro-zone crisis,” said Andrew Kenningham, an economist at Capital Economics Ltd. in London and former U.K. Foreign Office official. “But it looks as if it will do little more than urge euro-zone governments to come up with a more convincing solution of its own.” Merkel, French President Nicolas Sarkozy, International Monetary Fund Managing Director Christine Lagarde and European Union officials ended the first round of talks before being joined by Papandreou. European Commission President Jose Barroso said the referendum may hold up Greece receiving 8 billion euros ($11 billion) of already delayed support. “In the European Union, we have agreed on far-reaching measures to support Greece,” he said in a statement. “But for those measures to be implemented it is critically important to have stability in the country.” Europe’s woes are returning G-20 leaders to the crisis footing they adopted three years ago after the collapse of Lehman Brothers Holdings Inc. Australian Prime Minister Julia Gillard said in Cannes that Europe faces questions that “need to be answered and answered quickly,” while Chinese President Hu Jintao told Lagarde the crisis must be “prevented from spreading further.” Mandate Sought Papandreou, his hold on power eroding after a lawmaker from his socialist Pasok party defected, is betting the referendum will hand him a “clear mandate and strong message within and outside Greece on our European course and our participation in the euro.” Greek lawmakers will complete their debate on Nov. 4 with a vote of confidence in his administration. The calling of the twin polls yesterday shocked leaders and investors just five days after he signed up for a plan that requires continued austerity at home in return for 130 billion euros in aid and a 50 percent writedown on Greek debt. The strategy would also boost the spending power of Europe’s 440 billion-euro rescue fund to 1 trillion euros. The risk is that Greek rejection of the plan would spark a disorderly default and call into doubt the country’s membership of the euro. Papandreou is gambling voters will put their support for the single currency over their dislike of deeper austerity measures amid a recession in its fourth year. Greek Poll Forty-six percent of 1,009 people polled last week by Kapa Research SA on behalf of To Vima newspaper said they’d oppose the plan at such a referendum. In the same survey, more than seven in 10 favored Greece remaining in the euro. In Rome, Italian Prime Minister Silvio Berlusconi called a Cabinet meeting for tonight to pass emergency economic measures as investors respond to Greece’s woes by questioning the creditworthiness of the euro-area’s third largest economy. Its borrowing costs held near euro-era highs today, with the 10-year bond yielding more than 6 percent -- more than triple Germany’s -- even as the European Central Bank continued to buy the country’s bonds. “A crisis in Italy seems increasingly probable and would do much to expose the inadequacies of the bailout mechanism as a whole,” said Matt King, global head of credit strategy at Citigroup Inc. in London. Bond Sale Delayed Europe’s bailout fund today delayed a 3 billion-euro bond sale, with spokesman Christof Roche citing “market conditions.” The European Financial Stability Facility may await the outcome of the G-20 summit before selling the debt, according to a person with knowledge of the matter. Investors will tomorrow split their attention between Cannes and a meeting in Frankfurt of the ECB Governing Council, which will be chaired for the first time by President Mario Draghi. They are looking for clues on whether the bank will boost its buying or bonds or shift toward lower interest rates. Signs that the euro area is sliding toward a recession were underscored today as data showed manufacturing shrank for a third month in October. “After the last few days especially, blunt reassurance needs to be given that the Italian and Spanish bond markets will not be allowed to go the way of Greece, Ireland and Portugal,” said Marchel Alexandrovich, an economist in London at Jefferies International Ltd. “Getting this message across will be Draghi’s greatest challenge.” To contact the reporters on this story: Simon Kennedy in Cannes at skennedy4@bloomberg.net; Helene Fouquet in Cannes at hfouquet1@bloomberg.net To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Source