The European Union (EU) and the International Monetary Fund (IMF) has warned that it'll withhold the next tranche of promised bailout money to Greece in the event Athens can't provide assurances that it can live up to its commitments, according to reports.
The board would not want to give money to Greece and then wonder what will happen, a source at IMF told Reuters.
The board will want comfort that Greece will fulfill its commitments and right now Papandreou is unable to give that.
A source at the EU told the news agency: The sooner Greece holds the referendum, the sooner the [next] tranche will be paid. But right now, it isn't going to be paid.
This means that an eight billion euro ($11 billion) payment will be in limbo until after the referendum vote – which isn't even scheduled to be held until December.
Without this cash advance, Greece faces the serious risk of bankruptcy – an event that could spell financial catastrophe for the rest of the Eurozone.
Greek Prime Minister George Papandreou has thrown Europe into a tizzy by insisting that the rescue package agreed to last week at an emergency summit must be put to a popular vote in Greece through a referendum.
Dutch Finance Minister Jan Kees de Jager said that the planned referendum in Greece will complicate matters.
This [referendum] hinders the planning of the IMF and the Eurozone. It creates a problem for the whole sixth tranche, de Jager told parliament in The Hague.
I can imagine that it will be very difficult for the IMF if there is uncertainty about the sustainability.
European leaders, notably German Chancellor Angela Merkel and French President Nicolas Sarkozy, have demanded that Papandreou drop the referendum, and accept the rescue deal to prevent Greece from defaulting and going bankrupt.
Papandreou is expected to hold more urgent talks with his Western European counterparts ahead of the G20 summit later this week in Cannes, France.
Dutch Prime Minister Mark Rutte told parliament that while France and Germany are searching for a way out that minimizes the damage from what has happened in Greece, the Netherlands will also put pressure on Papandreou to cancel the referendum.
Similarly, the head of the German parliament's interior-affairs committee, Wolfgang Bosbach, told local television he can't imagine that the next tranche will be sent to Greece unless Athens guarantees it'll abide by its commitments under the original bailout plan.