Greek euro threat looms over Cannes G20 summit

(Reuters) - The threat of a Greek exit from the euro zone hung over a meeting of G20 leaders on Thursday after France and Germany made it clear that Athens must decide urgently whether it wants to stay in the 12-year-old currency bloc.

The summit on the French Riviera had been meant to focus on reforms of the global monetary system and steps to rein in speculative capital flows, but a shock decision by Greek Prime Minister George Papandreou Monday to call a referendum on a new EU/IMF aid package for his country has upended the talks.

Papandreou was summoned to Cannes on the eve of the summit and given a stark warning by French President Nicolas Sarkozy and German Chancellor Angela Merkel, both clearly angered by his gambit, which has sent global stock markets and the euro currency spiraling lower.

They convinced the Greek prime minister to bring forward the referendum to early December and insisted it be focused on the broad issue of whether Greece wants to stay in the currency bloc, rather than limiting it to a vote on a new 130 billion euro ($179 billion) bailout package, which a strong majority of Greeks oppose.

They also made clear that Athens would not receive an 8 billion euro aid tranche it desperately needs to avoid default until the referendum had passed.

Should it fail, the EU/IMF aid would end, plunging Greece into a disorderly default that would reverberate across the 17-nation euro zone, engulfing big economies like Italy and Spain.

"Our Greek friends must decide whether they want to continue the journey with us," Sarkozy told reporters at a joint news conference with Merkel after the crisis talks.

The German chancellor, describing the discussions with Papandreou as "tough and hard," said the goal of stabilizing the euro was ultimately more important than saving Greece if it did not want to be saved.

A chastened Papandreou flew back to Athens with his finance minister shortly after the talks had ended. Before leaving he said the referendum could take place on December 4 and would be focused on "whether we want to remain in the euro zone."