Markets face new threat: Greek referendum on Europe rescue plan
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The euro continued to weaken in Asian trading early Tuesday after Europe’s financial-rescue plan suffered a fresh blow: Greek Prime Minister George Papandreou said he would hold a national referendum on the terms of Greece’s bailout package.
The move was a shock to the rest of the European Union, because a thumbs-down by austerity-weary Greek voters could mean the end of Greece’s membership in the Eurozone -- and a disastrous default on all of the country’s heavy debt obligations to the rest of the continent.
The euro, which dived 2% in New York on Monday to $1.386, fell as low as $1.381 in Asian trading on Tuesday, the lowest since Oct. 20.
Papandreou’s announcement helped deepen Wall Street’s sell-off late in the session on Monday. The Dow Jones industrial average ended the day off 276.10 points, or 2.3%, to 11,955.01, the biggest drop in four weeks.
The call for a referendum could further unnerve European stock markets. They fell Monday as rising Italian government bond yields undercut the broad rescue plan European leaders unveiled last Thursday to end the debt crisis.
From the Los Angeles Times’ Anthee Carassava in Athens:
“This referendum will be a supreme act of democracy and of patriotism,” Papandreou said, apparently catching many lawmakers by surprise. “The [Greek] citizen will be called upon to say a big ‘yes’ or ‘no’ to the new loan arrangement.” But asking voters to support harsh austerity measures that were part of a painstakingly crafted bargain with Greece’s creditors casts uncertainty over the country’s ability to meet its part of the deal. Greece is facing the possibility of a devastating default that could imperil the fate of Europe’s single currency, shatter global markets and get the country evicted from the 17-nation Eurozone.
Yannis Michelakis, a spokesman for the opposition New Democracy party, told Reuters: “Mr. Papandreou is dangerous, he tosses Greece’s EU membership like a coin in the air. . . . He cannot govern and instead of withdrawing honorably, he dynamites everything.”
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-- Tom Petruno