As governing Socialist party lawmakers in Athens revolted and European leaders watched anxiously, the ripples reached Wall Street, where investors unloaded stocks and euros because of fear that the Greek turmoil would unleash protracted financial chaos across the globe.
Market reaction was brutal, particularly in Europe, with the Athens exchange down a massive 6.92 percent on worries the turmoil could bring down the government. France’s bourse closed down 5.38 percent, while Italy’s main index slumped 6.7 percent.
The backlash against Prime Minister George Papandreou’s risky gamble to announce a referendum was swift. The premier came under criticism from across Europe, within Greece and from his own Socialist party, which has been clinging to an ever-shrinking parliamentary majority.
Papandreou convened his ministers late Tuesday, with government deputy spokesman Angelos Tolkas insisting the premier was sticking to his position.
“The government is not falling, the government has made a choice which has drawn a rabid reaction, to ask all of society what kind of a country it wants in the future,” Tolkas said as the Cabinet meeting entered its third hour.
Finance Minister Evangelos Venizelos — who apparently had been unaware of Papandreou’s decision in advance — was unable to make the meeting after being hospitalized early Tuesday with stomach pains. He was to remain in the clinic overnight.
While Papandreou didn’t set a date for the referendum, ministers indicated it could be held early next year. Papandreou also called for a vote of confidence in his government, to be held midnight Friday.
“This announcement surprised all of Europe,” said a clearly annoyed French President Nicolas Sarkozy, who has been scrambling to save face for Europe before he hosts leaders of the Group of 20 major world economies later this week. “Giving the people a say is always legitimate, but the solidarity of all countries of the eurozone cannot work unless each one consents to the necessary efforts.”
French lawmaker Christian Estrosi was even more direct.
“It seems to me totally irresponsible on the part of the Greek prime minister,” he said on France-Info radio. “I have the impression that a wind of panic is blowing on him and his party, and I want to tell the Greek government that when you are in a situation of crisis, and others want to help you, it is insulting to try to save your skin instead of assuming your responsibilities.”
Governments have already fallen in Portugal and Ireland, two other European nations that had to accept bailouts.
The main opposition conservatives called for Papandreou’s resignation.
“In his attempt to save himself, Mr. Papandreou set a divisive, blackmailing dilemma that endangers our future and our position in Europe,” New Democracy party leader Antonis Samaras said.
Sarkozy and German Chancellor Angela Merkel, who have been at the forefront of Europe’s wrangling to contain its debt crisis, discussed the issue and agreed to convene leading European institutions for more emergency talks Wednesday in Cannes, which Papandreou will also attend.
Merkel also spoke by telephone Tuesday with Papandreou.
A public vote would allow the Socialists — who have been vilified by an increasingly hostile public during months of strikes, sit-ins and violent protests over austerity measures — to pass the responsibility for the country’s fate onto the Greek people themselves.
But it was unclear if Papandreou’s government would last long enough for the referendum to take place — or even last until Friday’s confidence vote.
Several Socialist lawmakers openly rebelled, with one going as far as defecting. Milena Apostolaki’s departure whittled Papandreou’s parliamentary majority to 152 seats in the 300-member legislature.
Her departure “shows clearly that the government itself is losing gradually its cohesion,” said George Tzogopoulos, a political analyst from the Hellenic Foundation for European and Foreign Policy. “(It) will not be able to remain in power for many days.”
He expected Papandreou, whose term ends in 2013, to call an early election “very soon.”
Many wondered why Papandreou decided to call for a vote on this debt deal when he did not ask for one last year when Greece got its first bailout.
“Yesterday’s surprise and irrational announcement of the referendum has led me to doubt something that I considered certain until yesterday: That I am a member of a group that is striving to save our country from bankruptcy,” Socialist deputy Hara Kefalidou wrote in a letter to Papandreou. “I cannot back a referendum which is a subterfuge by a government that appears unwilling to govern.”
The horrified reaction in Greece and across Europe reflected anger that Papandreou’s move — if a referendum is eventually held — could overturn a deal which took months and months of work.
The marathon European negotiations produced a deal which aims to seek 50 percent losses for private holders of Greek bonds and provide the troubled eurozone member with (euro) 100 billion ($140 billion) in additional rescue loans — little more than a year after Greece became reliant on another (euro) 110 billion ($150 billion) bailout from the eurozone and the International Monetary Fund. But negotiations with the banks on the details have still not been finalized.
A ‘no’ vote could cause a disorderly debt default in Athens that would cause bank failures across Europe, new recessions in the developed world and see Greece leave the common euro currency. It could also pose new dangers for larger troubled economies like Italy and Spain.
Jean-Claude Juncker, who chairs eurozone ministerial meetings, said the referendum was a dangerous decision that could endanger Greece’s next bailout loan of (euro) 8 billion ((euro) 11 billion) that was being sent within days. Athens runs out of money to pay pensions and salaries by mid-November and faces bond redemptions in December.
It was not only international leaders who were taken by surprise.
Venizelos, Papandreou’s own finance minister, had also been left in the dark, an official close to the minister told the AP.
Venizelos “found out about it along with all other Greeks” during Papandreou’s speech, which was televised live Monday, he said. The official spoke on condition of anonymity to discuss sensitive details.
From his hospital bed, Venizelos launched a telephone marathon to shore up international support for the debt deal, speaking with German Finance Minister Wolfgang Schaeuble, Deutsche Bank chief executive Josef Ackermann, EU’s Monetary Affairs Commissioner Olli Rehn, Poul Thomsen, the International Monetary Fund’s mission chief for Greece, and Charles Dallara from the global banking lobby that negotiated the debt reduction deal.