Greece’s exit from the euro zone is increasingly likely after the country’s prime minister called for a referendum on a proposed EU bailout.
George Papandreou shocked fellow European leaders and global investors when he announced late on Monday that a Greek vote on the euro zone could be held within weeks.
Opinion polls show that Greeks vehemently oppose the bailout, which comes with harsh austerity measures.
“If there is a referendum, the ‘no’ will win. Greece is playing a suicidal game that could lead to its exit of the euro zone,” Marc Touati, the chief economist at Assya Compagnie Financiere in Paris, told Reuters.
Jean-Claude Juncker, the chairman of the Eurogroup, which comprises euro zone finance ministers, warned that Greece would end up bankrupt if its voters rejected the bailout.
Mr Papandreou’s move sent stock markets tumbling yesterday. Several continental European indices, including those for Spain, Germany and France, lost about 5 per cent. The main Greek index, the Athex composite, fell 6.92 per cent.
In British and, through midday, North American trading, the shock hit less close to home. Those markets were down by roughly 2 per cent.
In response to Mr Papandreou’s referendum, Greece’s conservative opposition party yesterday called for early elections. The government is to undergo a vote of confidence in parliament on Friday; the vote is expected to be tight.
Already yesterday, two members of Mr Papandreou’s party had reportedly said they would defect, leaving him with 151 of the 300 members in parliament.
The French President Nicolas Sarkozy and the German Chancellor Angela Merkel are expected to hold an emergency meeting with Greek officials today to push through the bailout, Reuters reported. “France and Germany are determined to ensure, with their European partners, the full implementation in the quickest time frame, the decisions adopted at the summit, which are today more important than ever,” Mr Sarkozy’s office said.
The euro zone is an economic union of 17 European nations that use the euro as their currency and have a common monetary policy run through the European Central Bank. The euro zone began in 1999, and Greece joined it two years later.
Last week, European leaders hammered out a deal to write off half the money Greece owes banks, fatten a recently established bailout fund and increase the level of capital that banks are required to have at hand.
But Mr Papandreou’s announcement has set off a new round of uncertainty.
