PARIS French President Nicolas Sarkozy and German Chancellor Angela Merkel will hold an emergency meeting with Greece on Wednesday to push for a quick implementation of Athens' bailout deal, the "only solution" to its debt crisis, Sarkozy said on Tuesday.
Markets tumbled across Europe in response to the announcement by the Greek government to hold a referendum on the agreement which is expected to take place in a few weeks.
Last week's 130 billion-euro ($180 billion) bailout package had raised hopes a line could be drawn under banks' Greek losses and euro zone bonds could be sold to China and other investors.
"This announcement took the whole of Europe by surprise," Sarkozy said in a rare televised address on the steps of the Elysee palace in Paris.
"The plan ... is the only way to solve Greece's debt problem," he said after a lengthy meeting with his top ministers and the central bank governor to discuss the referendum decision.
Sarkozy said a hastily arranged meeting for Wednesday in the Riviera resort of Cannes with his German counterpart Angela Merkel, Greek Prime Minister George Papandreou, European Union and IMF officials would "examine the conditions under which the commitments made could be maintained."
Sarkozy, Merkel, Eurogroup President Jean-Claude Juncker, European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, IMF chief Christine Lagarde and an ECB representative will first meet at 1730 local time (12:30 p.m. ET). They will then meet Papandreou and his finance minister at 2030 local time.
The meeting comes just before a Nov 3-4 gathering of G20 heads of states in Cannes and will attempt to reassure world powers that the euro zone can resolve its crisis.
After an earlier call with Merkel, Sarkozy's office said the two countries were "determined" to ensure, the full implementation of the October 27 deal in the quickest time frame.
FUEL TO THE FIRE
Share prices of French banks and other lenders exposed to Greece and other weak euro zone countries slumped on Tuesday.
Societe Generale tumbled 16.2 percent and BNP Paribas and Credit Agricole fell more than 12 percent. They are among the most exposed to Greece through sovereign debt holdings and loans.
"We have just added fuel to the fire and we don't understand at all the decision of the Greek PM," said Marc Touati, chief economist at Assya Compagnie Financiere in Paris.
"If there is a referendum the 'no' will win. Greece is playing a suicidal game that could lead to its exit of the euro zone so there is fear on French banks, but also on (euro zone) states."
David Thesmar, professor of finance at business school HEC in Paris said the referendum decision made the scenario of a Greek exit from the euro zone more credible.
"I just hope that European politicians are preparing for such an eventuality," he said. "I fear that because of blindness and because of ideology they are refusing to conceive of it ... And that would really be a catastrophe, to not be ready for it."
The Greek government's decision brought a sharp rebuke from a former industry minister and close ally of Sarkozy within his UMP ruling party, Christian Estrosi, who called the move "totally irresponsible."
"When we are in a crisis situation and others want to help you it is insulting to try to save one's skin rather than to face one's responsibilities," said Estrosi.
Far-right leader Marine Le Pen, who is seen as winning 10 percent of the vote in next year's presidential elections on a campaign for more protectionism and for France to leave the euro, said it was time for European leaders to come up with a "plan B" to prepare an exit from the euro before "catastrophe and panic" strikes.
"We tried to gain time at an exorbitant cost for the people knowing that the end was inevitable," Le Pen told i-Tele television.
"We now need to get round the table and prepare a concerted, intelligent plan to leave the euro with our European partners. This mad dash must end otherwise there will be revolt among European people."
(Additional reporting by Emmanuel Jarry and Lionel Laurent; Writing by John Irish; Editing by Jon Hemming)