Euro Showdown: Greek PM Faces Bailout Anger

The Greek prime minister has faced EU leaders over his plans for a controversial referendum on the eurozone bailout.

French president Nicolas Sarkozy and German chancellor Angela Merkel met with George Papandreou for nearly three hours of emergency talks in Cannes.

It came on the eve of a G20 summit of major world economies - and amid reports of EU and International Monetary Fund sources saying an 8bn euro payment would not be given to Greece until after the referendum.

The money, the sixth tranche from a 110bn euro package agreed for Athens last year, was signed off last week but is reportedly on hold. Without the payment, Greece faces bankruptcy.

Mrs Merkel earlier said European leaders stand by the overall rescue plan, and want "clarity" from Athens regarding the referendum, which has been backed by Greece's cabinet.

Meanwhile the European Commission President, Jose Manuel Barroso, has warned that conditions for Greek citizens will become "much more painful" if they fail to accept the deal.

The agreement reached by European leaders last Thursday in Brussels will see banks accept a 50% writedown of Greece's debt - higher than the 40% they had originally offered.

It was also agreed that the 440bn euro (£386bn) bailout fund will be increased to around 1trn euro (£876bn).

Mr Barroso urged the Greek government to show it will make an effort to achieve public support - and added that the consequences of the plan failing were "impossible to predict".

Mr Papandreou will be accompanied at the emergency talks by his finance minister Evangelos Venizelos, who has just been discharged from hospital following treatment for stomach problems.

The Greek cabinet supported Mr Papandreou's shock call for a referendum on the European economic rescue plan despite Tuesday's heavy falls on the financial markets.

Markets were calmer on Wednesday, but in a further sign of shaky confidence, the head of the eurozone bailout fund put off a planned attempt to raise 3bn euros due to "deterioration of market conditions".

In Italy, cabinet ministers have agreed anti-crisis measures ahead of the G20 summit as Prime Minister Silvio Berlusconi struggles to fight off contagion from the eurozone debt crisis.

Mr Papandreou told his ministers that putting the issue to the Greek people was the only way to safeguard the proposed debt-and-loan deal.

Some of Greece's ministers said they had expressed reservations about the referendum but decided to support the government ahead of a key confidence vote expected in parliament on Friday.

"We will not implement any programme by force, but only with the consent of the Greek people," Mr Papandreou said.

"This is our democratic tradition and we demand that it is also respected abroad."

He said a referendum "will be a clear mandate, and a clear message within and outside of Greece, about our European course and our participation in the euro", according to a text of his speech to the meeting issued by his office.

Greek journalist Anthee Carassava said: "The Greek prime minister was facing his own domestic pressure and that is obviously what he is going to be telling them, that this is not an easy task to bring on additional austerity measures and more pain to Greeks."

Mr Sarkozy said news of the referendum had "surprised all of Europe".

"Giving the people a say is always legitimate but the solidarity of all countries of the eurozone cannot work unless each one consents to the necessary efforts," he said.

Speaking on Jeff Randall Live, Constantine Michalos, the head of the Athens Chamber of Commerce, said Mr Papandreou's referendum call was a "suicidal move" that had sent the markets "completely in the doldrums".

"He came out of the blue with this referendum idea, which he hadn't communicated even to his closest cabinet ministers... or with the major leaders of the European Union," he said.

"The euro has been threatened. And of course the credibility factor concerning Greece - which has been a problematic issue for months now as a result of the debt crisis - has worsened even more."