Greece given euro ultimatum by France and Germany

Nicolas Sarkozy, the French president and Angela Merkel, the German Chancellor, said no funds from either Europe or the International Monetary Fund (IMF) would be made available until Greece had accepted the austerity programme.

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8:21AM GMT 03 Nov 2011
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At a press conference Mr Sarkozy said: "Our Greek friends must decide whether they want to continue the journey with us.

"We cannot commit European taxpayers' money unless the rules unanimously adopted in Brussels are respected to the letter."

He was flanked by Mrs Merkel, who added: "The referendum will revolve around nothing less than the question: does Greece want to stay in the euro, yes or no?"

David Cameron said that the world was facing a "financial storm" as Greece may now be forced out of the single currency.

Simon Johnson, the former chief economist at the IMF said Europe was "looking straight into the face of a great depression".

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The National Institute of Economic and Social Research said that Britain had a 70 per cent chance of falling back into recession under the "increasingly more likely" scenario that the euro crisis will not be resolved imminently.

The Prime Minister will travel today to the G20 summit but is expected to be little more than a bystander as key meetings take place between European and American leaders.

The British government has refused to contribute money to help the euro but European leaders are expected to lobby the Chinese, Russians and Brazilians for loans. An EU diplomat claimed last night that European leaders thought they had been misled by the Greek prime minister – as he had used the threat of a referendum during a eurozone summit last week in order to win concessions.

"Everyone thought the threat had been dropped. Only one way to describe this: 'absolute bloody fury'," said the diplomat.

"If it wasn't a case of mutually assured destruction this would be the moment that it is game over for Greece."

With Greek national opinion currently against perceived European interference in its affairs, the country could be forced out of the single currency in a disorderly and chaotic manner. The removal of EU support comes as Greek politicians begin discussions on whether to vote in favour of a no–confidence motion in Mr Papandreou, which could trigger the government's collapse.

European leaders are hoping that, by increasing dramatically the pressure on Greece, politicians may demand that the referendum is scrapped.

An IMF source said: "The [IMF] board would not want to give money to Greece and then wonder what will happen. The board will want comfort that Greece will fulfil its commitments and right now Papandreou is unable to give that."

There are mounting fears that the Greek crisis will fatally undermine Italy's economy in the coming days.

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