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The Guardian/UK

Greece Gets Ultimatum: Accept Austerity Plan or Forego Extra Bailout Cash

David Gow in Athens

Protesters dressed as prisoners gather during an event to protest against austerity measures outside the Greek parliament in Athens, Tuesday, Nov. 1, 2011. (AP Photo/Thanassis Stavrakis)

Greece has been given an ultimatum that it will get no more money from the European Union and International Monetary Fund until its people have voted to accept the austerity measures demanded by the bailout package.

The latest tranche of bailout aid, worth €8bn (£7bn) and agreed just two weeks ago, is seen as vital for ensuring that Greek public sector workers can continue to be paid. But it will now be delayed until after the country decides in a referendum whether it accepts the new rescue package or even wants to stay in the euro.

The threat to send Greece closer to bankruptcy emerged on the margins of the G20 summit in Cannes – due to start on Thursday – and follows a blunt warning from Jean-Claude Juncker, chairman of the eurogroup, that the sixth tranche of the original €110bn bailout was now in jeopardy.

Speaking after the bombshell decision of Greek prime minister, George Papandreou, to hold a referendum, Juncker, Luxembourg's veteran prime minister, asked: "Can we under these conditions pay out the sixth tranche, the €8bn, that we decided upon two weeks ago when we don't know whether the Greeks still agree with what was agreed?"

The €8bn was due to be paid in mid-November but German officials are suggesting that Greece – which has €360bn debts and GDP of just €220bn – can survive until mid-December without the payment. The likely dates for the referendum are thought to be 5 or 12 December.

The IMF board had yet to endorse the payout of the sixth tranche, but it is now thought that meetings of both the 17-strong eurogroup of finance ministers and the broader EU group including non-eurozone ministers could formally decide to withhold payment early next week in Brussels.

However, there remains doubt whether the referendum will ever be held, given the fragile hold on power that Papandreou has before Friday's confidence vote on his government. There is also confusion about what exactly the Greek public will be asked. Some suggest the vote will only be on the bailout package, while others claim it will be on membership of the EU.

Stockmarkets have regained some composure after Tuesday's sell-off, but EU officials are angry that Papandreou's action has guaranteed weeks, if not months, of political uncertainty and market volatility. France's prime minister, François Fillon, told his parliament: "Europe cannot be kept waiting for weeks for the outcome of the referendum. The Greeks must say quickly and without ambiguity whether they choose to keep their place in the eurozone or not".

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