Greece Faces Grilling at G-20

Fears of Political Chaos Tank Global Markets as Europe's Bailout Plan Teeters

The Wall Street Journal

By MARCUS WALKER And ALKMAN GRANITSAS

Greek Prime Minister George Papandreou, fighting for political survival at home, faced a grilling from euro-zone leaders over his plan to put Greece's international bailout to a referendum.

At a meeting in Cannes, France, late Wednesday ahead of the summit of the Group of 20 leading economies, the euro zone's two most powerful politicians, German Chancellor Angela Merkel and French President Nicolas Sarkozy, were expected to warn Mr. Papandreou to keep the bailout plan on track.

The message for the Greek leader, say German and French officials: Any referendum must take place as soon as possible so that the bailout plan agreed to in October can go ahead. And Greece won't get more-generous bailout terms than those already on offer

Euro-zone authorities are worried that banks won't take part in a planned restructuring of Greece's bond debt while the outcome of a possible referendum remains uncertain. Under pressure to move fast, Greek officials now suggest the vote could be held in early December.

Mr. Papandreou stunned Europe and financial markets this week by calling for a plebiscite on the latest, €130 billion (around $178 billion) rescue package for Greece, which is tied to even-deeper austerity policies in the economically suffering country as well as the restructuring of Greek bonds.

Analysts say the referendum idea was a Hail Mary pass by an increasingly friendless premier, aimed at gaining a popular mandate for his painful overhauls of the Greek state and economy, and putting his opponents on the spot. But if voters spurn the bailout deal, Greece could face national bankruptcy and exit from the euro, while leaving Europe confronting an almighty financial panic and an economic slump.

The enormous stakes, and the high risk of a "no" vote amid Greeks' anger about steep government cuts and tax hikes, have triggered a revolt by some lawmakers in Mr. Papandreou's ruling Socialist party.

On Wednesday it appeared he might muster enough votes to scrape through a vote of confidence in parliament planned for Friday. Defeat in the confidence vote would likely trigger elections or the formation of a national-unity government under a new leader.

But even if Mr. Papandreou survives in office, he may lack enough lawmakers' support to stage the referendum. Although he won his cabinet's backing to propose a referendum on Tuesday night, parliament must approve the proposal. Mr. Papandreou could struggle on as prime minister even if his referendum idea is defeated by his own lawmakers, but his authority would be severely damaged and analysts say a change of leadership could soon follow.

"I don't think we will reach the referendum," says George Kyrtsos, a leading political commentator and publisher of the City Press newspaper. Given the level of dissent in parliament, the premier "is unlikely to drum up the necessary support," Mr. Kyrtsos says.

Greek government officials are hoping that dissident Socialist lawmakers can be talked round.

Although the referendum idea caught most of Europe by surprise, the move was characteristic of Mr. Papandreou, an unconventional politician who combines high-minded democratic idealism with a penchant for high-risk power plays.

The 59-year-old American-born scion of Greece's leading political family, who is the son and grandson of two famous postwar prime ministers, has previously tried to break out of political binds by throwing issues open to a wide electorate, or launching surprise initiatives.

"It is vintage Papandreou, something he learned from his father and grandfather, namely the element of surprise and turning the tables," says Stan Draenos, a Greek-American historian and biographer of longtime Greek leader Andreas Papandrou, the current premier's father.

The younger Mr. Papandreou, a left-leaning liberal influenced by the U.S. counterculture of his student days at Amherst College, has long hoped to make Greece's murky political culture more transparent and democratic.

In 2007, while in opposition, he defeated a challenge for the Socialist party leadership by holding an open, U.S.-style primary election, breaking with the Greek tradition of settling such matters in backroom deals.

In June this year, amid massive street protests and riots against his austerity policies, he unexpectedly called conservative opposition leader Antonis Samaras and proposed a bipartisan government. The two couldn't agree, and his move led to days of political turmoil in Greece that nearly brought down his government.

This week, as in June, Mr. Papandreou launched his bold move without consulting even his cabinet. The premier's unpredictability is once more causing consternation in Greece. On Wednesday, left-leaning newspaper Eleftherotypia ran the front-page headline "The Lord of Chaos" above a photo of the prime minister.

People close to Mr. Papandreou say he has struggled to deal with being a hate figure for street protesters, and agonizes over the harsh cuts in pensions and public-sector pay he has had to enforce to please Greece's creditors. The mild-mannered premier, who these people say would rather be a consensus builder, has argued this week that a referendum is the only way to get the nation behind a tough economic workout program and overcome its bitter divisions.

—Stelios Bouras and Matina Stevis contributed to this article.

Write to Marcus Walker at marcus.walker@wsj.com and Alkman Granitsas at alkman.granitsas@dowjones.com