Sovereign Debt Crisis: The Moment When The EU Almost Collapsed

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While there are plenty of bears who think that the Eurozone sovereign debt crisis wasn’t solved so much as kicked down the road, the markets and most analysts are optimistic that Europe (not just Germany) is finally pulling out of the recession. With a couple years’ distance and six months’ worth of interviews, Peter Spiegel at the Financial Times has recreated the tense negotiations at the November 2011 G20 conference in Cannes that shaped Europe’s response to the crisis.

The G20 conference had already been scheduled, but when German Chancellor Angela Merkel and then-French President Nicolas Sarkozy found out that George Papandreou, then-Prime Minister of Greece, had decided to call a national referendum to approve the €172 bailout plan that had recently been hammered in order to stave off growing protests.

Sarkozy, Merkel agreed to force Papandreou to hold an election on a Greek exit

Sarkozy in particular was “ballistic” and he agreed with Merkel to force Papandreou to change the referendum. Instead of deciding whether or not Greeks vote on the bailout, they would have to vote on whether they wanted to remain in the eurozone, with the bailouts coming along for the ride.

“She was very keen on it being a clear ‘in or out’ question,” one German official said of Merkel. “A key issue was whether the Greeks themselves wanted to be in or out, and if there would have been a referendum and the Greeks would have decided that they want out, that would have made the path easier.”

Barroso helped coordinate the end of Papandreou’s term as Prime Minister

Not only did Papandreou come under heavy pressure from the other heads of state, it sounds like the end of his term as Prime Minister was orchestrated at the summit. José Manuel Barroso, President of the European Commission at the time, contacted Greek opposition leader Antonis Samaras, who was now willing to reverse stance and form a national unity government if it meant preventing the referendum from taking place. Barroso also spoke with Papandreou’s finance minister Evangelos Venizelos, who released a statement saying that Greece’s membership in the eurozone couldn’t be left up to a referendum. Papandreou’s premiership lasted barely a week, and the referendum that he had proposed never took place.

Of course that’s not the only thing that happened at the G20 conference, and Spiegel’s article (the first of three) goes into more depth. With this much behind the scenes detail, we can only hope that Spiegel’s Financial Times articles are the starting point for a book on the EU sovereign debt crisis.

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