CANNES, France (Reuters) ? The mood was tough, the words 'crystal clear'. German and French leaders told Greek Prime Minister George Papandreou in two hours of torrid talks they would not allow the 50-year march of European integration to founder on Athens' failure to tackle its debt problems.
The confrontation in the Riviera town of Cannes raised for the first time the possibility of a state being ejected from the 12-year-old euro zone, even leaving the European Union itself.
Papandreou cut a lonely figure as he walked without aides into the meeting.
Flanked by his finance minister and sitting across a white-covered table from French President Nicolas Sarkozy and German Chancellor Angela Merkel, he was told bluntly he would get no more aid until Athens committed to play by the rules.
"There were incredible clear words to Greece in the talks," said one source who was present in the elegant meeting room at the Palais Des Festivals building.
"There was no aggressiveness in the talks, there was no open quarrel, but crystal clear words."
The referendum announcement had shaken markets and Europe's leaders. By Wednesday evening, though, horror appeared to have yielded to a sense of resignation and sober realism.
The sense of an approaching showdown with Papandreou could be read in Sarkozy's grim, stony face as he waited for five minutes on the red carpet to greet Chinese leader Hu Jintao for a brief dinner.
WARM EMBRACE
Merkel, standing alongside Sarkozy at a news conference after the talks, described them as 'tough and hard'.
"The euro as a whole must remain stable...We would prefer to ensure this with Greece rather than without it. But the top priority is stability."
Sarkozy was equally forthright.
"Our Greek friends must decide whether they want to continue the journey with us," he said.
The battle lines were set earlier in the day when Sarkozy welcomed Merkel as she stepped out of her black limousine with an embrace unthinkable in its warmth only weeks earlier. The symbolism would not have been lost on those who witnessed it.
The two had long been at odds over policy, particularly the role of the state in rescuing banks, and on personal style. But as representatives of the two states who launched the European project in the 1950s as a means to avoid another European war, they were ready to set it above the interests of any member state.
"The Greeks were obviously surprised at the unity on our side," a source who took part in the talks said.
IMF head Christine Lagarde, Eurogroup head Jean-Claude Juncker and EU Commission President Jose Manuel Barroso hammered home the same message, one after the other.
"We had not even the slightest difference in what Merkel was saying, Sarkozy was saying, Barroso was saying, Juncker and Lagarde were saying," a source at the talks said.
An EU source said the onslaught had its effect on Papandreou.
"I think it's fair to say that Papandreou was pretty shaken by the response he got from other EU leaders... He wasn't stirred from his intention to hold a referendum, but I think there's a good chance he left regretting having called it."
Papandreou agreed to bring a referendum forward from January to December 4 to shorten the period of uncertainty. Juncker demanded it be a question of whether Greece should stay in the Eurozone or not. A vote on the package as such would have little chance of winning public approval in austerity-wracked Greece.
Sources in the ministry of Greek Finance Minister Evangelos Venizelos said he was upset at being kept in the dark by Papandreou about his plan to call a referendum. It was a decision Papandreou, isolated within his own party, had taken with no warning to domestic or EU allies.
After that announcement he had gone to hospital with stomach pains, but left in time to go to Cannes to hear the reaction of the EU leaders for himself.
What he heard, clearly shocked him.
"He was very upset when he came out of the meeting. He could barely speak," a source in Venizelos's ministry said.
Papandreou and Venizelos flew back to Athens together after the meeting, arriving in Athens in the early hours.
"The atmosphere on the plane was cold," a government official told Reuters on condition of anonymity.
Back in Athens, Venizelos issued a statement declaring his opposition to the referendum plan. "Under these conditions a referendum is exactly what the country does not need," a finance ministry source said. "He would not have objections if all our pending issues such as the loan installment and the completion of the bailout plan had been sorted out."
Venizelos appeared to present himself as an alternative to Papandreou, under mounting pressure within his own party and from the opposition to resign. Conservative opposition leader Antonis Samaras demanded that a transitional government be formed immediately to run the country until snap elections, with the current parliament ratifying the rescue plan.
Beyond Greek frontiers, preparations went ahead for what only recently would have been unthinkable.
"We are working on the subject of hwo to ensure there is not a disaster for the people in Germany, Luxembourg, the euro zone," Juncker said in an interview with ZDF German television.
"We are absolutely prepared for the situation which I describe and which I want to be avoided."
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