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Greek referendum threatens new euro zone crisis

Last Updated: Tuesday, November 1, 2011 - 13:32

Athens: Greek Prime Minister George Papandreou risks a new euro zone crisis with his shock announcement that he will put the bailout deal struck last week to try to contain the bloc`s debt mountain to a referendum of voters already angry at harsh cuts.

Euro zone leaders agreed to hand Athens a second, 130-billion-euro bailout and a 50-percent write-down on its enormous debt to make it sustainable.

Papandreou, whose ruling Socialist party has suffered several defections as it pushes waves of austerity measures through parliament while protesters rally outside, said he needed wider political backing for the fiscal measures and structural reforms demanded by international lenders.

"If there was to be a referendum, we may reasonably conclude that they may not accept the austerity measures. We may conclude that it will bring the pack of cards tumbling down," Howard Wheeldon, senior strategist at BGC Partners in London, said.

Analysts said holding a referendum -- likely to be early next year and only Greece`s second in almost 40 years -- was baffling, given that the latest opinion poll showed a majority of Greeks took a negative view of the bailout deal.

And the renewed uncertainty will be likely be an embarrassment for G20 leaders in France this week trying to coax China into throwing the euro zone a financial lifeline.

Early reactions to the surprise move ranged from accusations that Papandreou was gambling with the country`s future and predictions of default, to questions over the legality of the referendum and statements by lawmakers that a No vote would force his resignation and early elections.

Nobel prize-winning economist Christopher Pissarides caught the mood of uncertainty: "It is difficult to predict what will happen to Greece if they reject it. It will be bad enough for the European Union and the euro zone in particular, but it will be far worse for Greece.

"In the scenario of a `no` vote Greece would declare bankruptcy immediately, they would default immediately. I can`t see them staying within the euro," he said.


First Published: Tuesday, November 1, 2011 - 13:32

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