Merkel 'suggests Greek referendum on euro membership'

Angela Merkel spoke by telephone with the Greek president on Friday

Germany's leader has had telephone contact with the Greek president, 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.

'Shared conviction'

In a telephone call with President Karolos Papoulias, Mrs 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.

"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.

'Conviction'

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

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

Mr 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," he said, "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.

That however still doesn't rule out the possibility of contingency planning, says the BBC's Matthew Price in Brussels.