Eurozone dispute brews as G8 summit leaders gather

Claims that German Chancellor Angela Merkel suggested debt-stricken Greece vote on whether it should stay in the eurozone have sparked a row.

The Greek allegation, which Berlin denies, comes as President Barack Obama welcomed G8 leaders to a dinner at Camp David, opening a summit expected to be dominated by the eurozone turmoil.

Mr Obama said talks on Saturday would promote a "strong growth agenda".

Investors fear a Greek eurozone exit could trigger a fresh global crisis.

The G8 leaders are expected to discuss Iran and North Korea's nuclear ambitions, and the unrest in Syria.

Athens said that Chancellor Merkel had suggested on Friday morning that Greece could hold a referendum on the euro when it votes in national elections next month.

The new spokesman of the caretaker Greek government, Dimitris Tsiodras, told me he had nothing to add since the earlier statement that Angela Merkel had discussed the referendum proposal with the Greek president.

If Chancellor Merkel indeed suggested a referendum on euro membership, it would be an astonishing about-turn. Last November, the then Greek PM George Papandreou formally proposed a referendum - ostensibly on the bailout, but it would have turned out to be on euro membership.

The idea caused outrage from Mrs Merkel and then French President Nicolas Sarkozy, furious that the Greek government could play such a potentially dangerous game with the euro. Mr Papandreou was forced to row back on the proposal - and it ultimately cost him his premiership.

Could Mrs Merkel's suggestion - if it stands (her office denies it was made) - be part of a high-stakes game of brinkmanship? Possibly. Berlin and others are obviously aware that the vast majority of Greeks want to stay in the euro, according to opinion polls. And they are using that fact to their advantage.

A statement from the office of Greece's interim prime minister said that Mrs Merkel had raised the subject during a telephone call with Greek President Karolos Papoulias.

The German chancellor "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 the statement.

"However, it is clear that the matter is beyond the competence of the caretaker government."

But Berlin denied such a proposal had been made.

"This is false and we completely dismiss this," a German government spokeswoman said.

Greece's 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 result of the poll could determine the fate of austerity measures which Greece's international creditors are insisting on.

Investors fear any refusal by Athens to impose deep spending cuts agreed under a bailout deal could result in the country quitting the bloc of 17 countries that use the euro.

Larger countries such as Spain or Italy that are struggling to ease their debt loads might then become vulnerable, potentially triggering wider eurozone upheaval and even a global financial crisis to rival the one of 2008.

The situation is expected to top the agenda as the leaders of the US, Germany, France, Britain, Japan, Russia, Italy and Canada gather for the annual G8 summit, at Camp David near Washington DC.

Francois Hollande and Barack Obama have met for the first time at the White House

Iran's nuclear programme and Syria's crackdown on dissent are also expected to be addressed during the main talks on Saturday.

On Friday, President Obama welcomed the new French President, Francois Hollande, to the White House to discuss economic matters.

Mr Hollande, who took office this month, said he and Mr Obama "have the same conviction that Greece must remain in the eurozone".

Mr Obama said the situation was of great importance not only to Europe, but for the whole world.

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

Mr Hollande also met British Prime Minister David Cameron at the British embassy in Washington.

Mr Cameron said that Greece must decide if it wanted 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."

Meanwhile, there was another contradiction as European Union Trade Commissioner Karel De Gucht said the bloc's officials were working on contingency plans in case Greece left the eurozone.

He was contradicted by own his colleague, Economic Affairs Commissioner Olli Rehn, who said in a statement: "We are not working on the scenario of a Greek exit."

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

After the G8 summit ends on Saturday evening, most of the leaders will decamp to Chicago to join a larger group of international officials for a Nato summit on Sunday and Monday, at which Afghanistan is expected to be the main item on the agenda.