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German Chancellor Angela Merkel has had telephone contact with Greece’s President Karolos Papoulias, amid continuing speculation that his country may have to leave the eurozone.

Greek officials said Chancellor Angela Merkel had suggested Greece could hold a referendum on the euro when it votes in national elections next month.

However, their German counterparts denied she had made such a proposal.

The crisis in the eurozone is expected to dominate G8 talks in the US this weekend.

The reports of the German-Greek contacts came as US and French leaders ended talks in Washington focusing on the economy.

In a telephone call with President Karolos Papoulias, Angela Merkel “conveyed thoughts about a vote parallel to the election with the question to what extent do the Greek citizens wish to remain within the eurozone,” said a statement from the office of Greece’s interim prime minister.

 

Greek officials said Chancellor Angela Merkel had suggested Greece could hold a referendum on the euro when it votes in national elections next month

Greek officials said Chancellor Angela Merkel had suggested Greece could hold a referendum on the euro when it votes in national elections next month

 

“However, it is clear that the matter is beyond the competence of the caretaker government,” the statement went on.

But a spokeswoman in Berlin said: “The information reported that the chancellor had suggested a referendum to the Greek President Karolos Papoulias is wrong.”

The caretaker government was sworn in this week after elections failed to produce a viable coalition to run the country.

New elections have been scheduled for 17 June.

The vote could result in a government that would refuse to implement the austerity measures that Greece’s last remaining international creditors are insisting on.

Speculation is increasing that Greece may have to leave the eurozone.

Meeting in Washington just before news broke of the German proposal, the US and French leaders said Greece should stay.

“We have the same conviction that Greece must remain in the eurozone,” France’s new President, Francois Hollande, said.

President Barack Obama said the situation in the eurozone was of great importance to the people of Europe and the whole world.

He said he looked forward to “fruitful” discussions with other G8 leaders, with a strong focus on economic growth.

Francois Hollande, who was elected president on 6 May, is also to have talks with British Prime Minister David Cameron.

David Cameron said that Greece must decide if it wants to remain in the euro.

“We need decisive action from eurozone countries in terms of strengthening eurozone banks, in terms of a strong eurozone firewall and decisive action over Greece. That has to be done.

“Clearly the Greeks have to make their minds up, they have to make their decision.”

Earlier, European Union Trade Commissioner Karel De Gucht said he European Central Bank and the European Commission are working on emergency scenarios in case Greece had to leave the single currency.

Several hours later, fellow commissioner Olli Rehn issued a statement saying that he is responsible for financial and economic affairs and relations with the ECB.

“We are not working on the scenario of a Greek exit,” he said.

 

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Evangelos Venizelos, leader of Greek Socialist Pasok party, has announced that the country is set to go to the polls again after days of coalition talks failed to produce agreement on a new government.

A final round of talks on Tuesday morning broke up without a deal.

In elections on 6 May, a majority of Greek voters backed parties opposed to austerity plans demanded by the EU and IMF in return for two bailouts.

Greek president Karolos Papoulias will appoint a caretaker government on Wednesday.

Karolos Papoulias will meet all political leaders at 13:00 local time on Wednesday to put in place an interim government until the new vote, which is expected to take place on 10 or 17 June.

“Unfortunately, the country is heading again toward elections,” Evangelos Venizelos told reporters after the talks on Tuesday.

The euro fell sharply on the news, tumbling from $1.2842 to $1.2771 shortly after 13:15 GMT – its lowest value since 18 January.

Greek shares also fell before recovering slightly.

Greek parliamentary results

Greek parliamentary results

The leader of the right-wing Independent Greeks Party, Panos Kammenos, said: “The pro-bailout parties would prefer a government which will further torment the Greek nation, rather than finding a solution. They have offered a proposal that is too rigid for me to accept.”

European leaders say that they will cut off funding for Greece if it rejects the bailout agreed in March.

This would mean effective bankruptcy for Greece and its all but certain exit from the European single currency, analysts say.

German Finance Minister Wolfgang Schaeuble again ruled out amending the bailout agreement.

“The people in Greece must know that what we have agreed for Greece and have set in train is an entirely unusual effort,” he said after talks in Brussels on Tuesday.

Polls suggest the leftist Syriza bloc, which came second in the 6 May vote and rejects all further cutbacks, could become the largest party after a new election.

Syriza wants to renegotiate the bailout package but also wants to keep Greece in the euro.

Greece must also decide whether to redeem an outstanding bond worth 436 million Euros ($558.67 million) which matures on Tuesday.

A Greek official, speaking on condition of anonymity, told the Associated Press that Athens would pay off the debt on schedule, thereby avoiding a default.

The chairman of the eurozone group of finance minister, Jean-Claude Juncker of Luxembourg, said on Monday he wanted Greece to remain in the single currency but warned that Athens must keep to its commitments.

Pasok and New Democracy, which signed up to the bailouts and had previously dominated Greek politics for decades, saw their combined share of the vote drop from about 77% to about 33% on 6 May.

 

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