Country ... Greece
Greek Financial Crisis

Greek move on referendum creates chaos ... Papandreou's cabinet backs him as ripples from Athens reach Wall Street, where the Dow Jones index plunges.

COMMENTARY

Peter Burgess

Greek move on referendum creates chaos ... Papandreou's cabinet backs him as ripples from Athens reach Wall Street, where the Dow Jones index plunges.

IMAGE Papandreou's move to put the EU package to a national referendum has prompted a global stocks decline [Reuters]

The Greek government teetered and stock markets around the world plummeted after a hard-won European plan to save the Greek economy was suddenly thrown into doubt by the prospect of a public vote.

One day after Prime Minister George Papandreou stunned Europe by calling for a referendum, the ripples reached from Athens, where some of his own party MPs rebelled against him, to Wall Street, where the Dow Jones industrial average plunged almost 300 points.

Papandreou convened a cabinet meeting on Tuesday night, and a spokesman said the prime minister was sticking to his decision to hold the referendum, which would be the first since Greeks voted to abolish the monarchy in 1974.

The cabinet unanimously backed Papandreou's decision. 'The government is not falling,' said Angelos Tolkas, a deputy government spokesman.

Papandreou told his cabinet that Greece's plan to hold a referendum on the EU aid package will make clear the country belongs in the euro and market turmoil will be short-lived.

'The referendum will be a clear mandate and a clear message in and outside Greece on our European course and participation in the euro,' Papandreou said, according to a statement released by his office. 'No one will be able to doubt Greece's course within the euro.'

Papandreou said Greece's partners will support its policies and urged a meeting of G20 leaders this week in Cannes to agree policies that 'make sure democracy is above market appetites'.

Papandreou has also called a vote of confidence in his government to be held on Friday.

Earlier, six senior members of Greece's ruling party called Papandreou to resign.

'The country urgently needs a politically legitimate government, a plan for a national revival,' the semi-official news agency ANA quoted a joint letter by the parliament members from PASOK's national council as saying.

Milena Apostolaki, a parliament member, broke away from PASOK to declare herself an independent, leaving the party with a majority of just two seats in the 300-member legislature.

Markets across Europe and the US fell in response to the announcement of the referendum.

Against this backdrop, the French and German leaders held emergency talks over phone to deal with the situation.

Both the leaders said in a statement that they were determined, together with their European partners, to guarantee the complete and timely implementation of the Euro debt deal.

They have summoned Papandreou to crisis talks in Cannes on Wednesday to push for a quick implementation of Greece's new bailout deal ahead of a summit of the G20 major world economies.

Gamble not working

Al Jazeera’s Jonah Hull, reporting from Athens, said Papandreou’s gamble is not working his way.

'This announcement by the Greek prime minister seems to have come as a surprise even to his cabinet and there are reports he didn’t even confer with his ministers over this,' he said.

'He certainly did not give away any hints or clues about it at the marathon talks last week in Brussels with his fellow eurozone leaders.'

Referring to a no-confidence vote that Papandreou faces on Friday, our correspondent said: 'He needs 150 plus one vote and that’s the number of votes he has. He needs every single vote.

'There are rumours that there are others among his socialist party who are considering their position. So, it is looking possible at least that Papandreou may not survive Friday’s no-confidence vote.

'That would mean government has fallen, there would then be a possibility that socialist might be asked to form some sort of coalition. If they can’t, the opposition, conservative New Democracy Party might have a go, and if that fails then there would be general elections.'

Last week's bailout package had raised hopes a line could be drawn under banks' Greek losses and euro zone bonds could be sold to China and other investors.

Papandreou's decision has not gone down well with the people. With anger running high in Greece over tough austerity measures that have raised taxes, lowered wages and triggered strikes, analysts fear Greeks will vote down their financial lifeline and push the country to economic collapse.

A poll over the weekend showed nearly 60 per cent of Greeks have a negative view of the rescue deal, suggesting that voters in the referendum likely to be held early next year, will say no to the rescue package.

Source: Al Jazeera and agencies