Markets Slide After Surprise Referendum Is Set by Greece Skip to main content

Markets Slide After Surprise Referendum Is Set by Greece

The New York Times

ATHENS — European markets slid dramatically on Tuesday after Prime Minister George A. Papandreou stunned the continent’s leaders with a surprise announcement late Monday that his government would hold a referendum on a new aid package for Greece.

The proposed ballot measure would put Greek austerity measures — and potentially membership in the euro zone — to a popular vote for the first time, risking Mr. Papandreou’s political future and threatening even greater turmoil both among the countries that share the single currency and further afield.

His announcement sent tremors through Europe’s see-sawing markets on Tuesday, with bank stocks taking a particular hammering because of their exposure to Greek debt. At midday, the German DAX index was down by 5.3 percent while the French CAC 40 had slipped by roughly 4.2 percent. In Britain, which is not a member of the euro zone but trades heavily with continental Europe, the FTSE 100 index was down by around 3.2 percent.

Markets in the United States opened lower, declining by around 2 percent.

President Nicolas Sarkozy of France was expected to speak with Chancellor Angela Merkel of Germany by phone during the day on Tuesday to discuss the referendum, which took both leaders by surprise, Agence-France Presse reported. The French president was said to be “dismayed,” according to Le Monde, citing an unnamed confidant of Mr. Sarkozy.

The German Finance Ministry deflected questions in a statement early Tuesday, saying that the call for a referendum “is a domestic political development on which the German government has no official information yet and which therefore it will not comment on.”

But Rainer BrĂ¼derle, a senior member of Ms. Merkel’s governing coalition and a former finance minister, said in a radio interview on Tuesday that he was “irritated” by the move, which he called “a strange thing to do.”

“This sounds to me like someone is trying to wriggle out of what one has agreed to,” he was quoted by Der Spiegel as saying.

Mr. Papandreou’s surprise promise of a vote on the austerity package introduced a note of uncertainty in what had seemed to be a done deal, threatening a comprehensive agreement reached by European leaders last week to shore up the euro zone. A rejection by the voters would also be likely to be treated as a vote of no confidence in the government and lead to early elections.

The anxiety stirred up by those fears hammered United States financial markets on Monday, showing once again how the domestic politics of even the smallest members of the European Union can create troubles that not only threaten the currency but also reverberate around the globe.

Addressing lawmakers on Monday evening, Mr. Papandreou said the decision on whether to adopt the deal, which includes fresh financial assistance, debt relief and deeply unpopular austerity measures, properly belonged to the Greek people.

“Let us allow the people to have the last word, let them decide on the country’s fate,” he said.

It was unclear how the referendum would be worded, but Mr. Papandreou said it would be a vote on whether or not Greeks supported the debt deal and the program of austerity measures in exchange for foreign aid.

The stakes are extremely high. A no vote could break the deal between Greece and its so-called troika of foreign lenders — the European Union, the European Central Bank and the International Monetary Fund — which have demanded structural changes and austerity measures in exchange for aid.

Without the aid, Greece would not be able to meet its expenses and would default on its debt, sending shock waves through the euro zone and the world economy.

A yes vote, on the other hand, would move the package forward, effectively shifting responsibility for the nation’s painful economic choices from Mr. Papandreou’s Socialist Party onto the public. That outcome would help Mr. Papandreou shore up his political position and avoid the instability of early elections.

The center-right opposition has opposed the bulk of the austerity program, and the prime minister’s popular support has dwindled as Greeks have been hit by a seemingly endless series of tax increases and wage and pension cuts. On Sunday, the center-left newspaper To Vima reported that a majority of Greeks viewed the deal negatively.

The leader of Greece’s main conservative opposition party New Democracy, Antonis Samaras, told reporters in Athens on Tuesday that his party would do whatever it took to force early elections and accused Mr. Papandreou of acting selfishly by calling for a referendum.

“Mr. Papandreou, in his effort to save himself, has presented a divisive and extortionate dilemma,” Mr. Samaras said following talks with President Karolos Papoulias.

The Greek government was plunged into chaos on Tuesday and faced an imminent collapse, as lawmakers rebelled against Prime Minister George Papandreou’s surprise call for a popular referendum on a new debt deal with Greece’s foreign lenders.

Such a collapse would not only render the referendum plan moot, it would likely scuttle — or at least delay — the debt deal that was agreed on in Brussels last week, putting Greece on a fast track to default and possible exit from the monetary union of countries sharing the euro currency.

Analysts said that Mr. Papandreou’s call for a referendum was a last resort, meant to gain broader political support for the unpopular austerity measures in the deal without forcing early elections that would only worsen the country’s political and economic turmoil.

But after weeks of mounting pressure, one Socialist lawmaker quit the party to become an independent, reducing Mr. Papandreou’s majority to 152 seats out of 300 in Parliament, and another six Socialists wrote a letter calling on Mr. Papandreou to resign and schedule early elections for a new government with greater political legitimacy. Together, the developments made it doubtful whether his government would survive a confidence vote planned for Friday.

Meanwhile, the center-right opposition New Democracy party on Tuesday stepped up its calls for early elections. Its leader, Antonis Samaras, has opposed most of the austerity measures the government accepted in exchange for foreign financial aid. Mr. Samaras has said that if he were in power, he would try to renegotiate the terms of Greece’s arrangement with its principal foreign lenders, known as the troika: the European Union, the European Central Bank and the International Monetary Fund.

“Mr. Papandreou, in his effort to save himself, has presented a divisive and extortionate dilemma,” Mr. Samaras said on Tuesday. “New Democracy is determined to avert, at all costs, such reckless adventurism.”

Mr. Samaras declined to say whether he would ask his 85 members of Parliament to resign, a move that would lead to the dissolution of Parliament and a snap election. The next general election was not due until 2013, when the Socialists’ four-year-term expires. Mr. Samaras is expected to clarify his stance at a meeting of his party’s parliamentary group on Wednesday.

European leaders have repeatedly dismissed Mr. Samaras’s notion of renegotiating Greece’s deal with its lenders, saying that trying to do so would be damaging and would throw away months of work on a plan to keep Greece from defaulting.

Mr. Papandreou’s announcement of a referendum took Greek lawmakers by surprise, just a s it did political leaders and investors across Europe. On Tuesday, the state television channel Net reported that even the finance minister, Evangelos Venizelos, had not been informed in advance about the referendum, although he was aware of plans for a confidence vote.

Mr. Venizelos was taken to a hospital Tuesday morning, complaining of stomach pain. Doctors said he had an inflamed appendix. He is the latest in a string of governing party officials to be rushed to hospitals in recent weeks. One Greek negotiator had a heart attack in Brussels last week.

On Tuesday, European leaders said the deal reached last week to write down 50 percent of some Greek debt was the best available way to build a financial “firewall” that would keep Greece’s troubles from causing a damaging run on other shaky European economies like that of Italy.

The political instability in Greece has long dismayed European officials. In a statement, the president of the European Commission, Jose Manuel Barroso, and the president of the European Council, Herman Van Rompuy, said that Europe’s plans to protect other vulnerable members were “more necessary than ever, without delay.”

“We are convinced that this agreement is the best for Greece,” they added. “We fully trust that Greece will honor the commitments undertaken in relation to the euro area and the international community.”

In Greece, Mr. Papandreou’s referendum proposal seemed to be his last, best hope. His political capital has dried up, and he faces intense anger from voters who have been squeezed to the breaking point by the austerity measures demanded by Greece’s foreign lenders.

“Papandreou could not take more political punishment,” said George Kirsos, a political analyst and the owner of the Athens City Paper. “We have a strange situation: Everyone’s cursing the government, and everyone expects the government to do the job by itself — to reorganize the economy, to cut the deficit, to make a deal with the Germans — but at the same time, nobody helps him.”

“All parties and all media criticize the government,” Mr. Kirstos added. “So Papandreou, in a sense, tried his best to do the referendum to force the parties, the media and the citizens to undertake their own responsibility. The referendum is a yes or no issue: Either you are in favor, or you decide that you say goodbye to the euro zone.”

Charged by Europe with dismantling the welfare state they helped create, many of Mr. Papandreou’s Socialist members of Parliament feel they too have reached their breaking points.

Vasso Papandreou, a prominent member of parliament and a former minister who is not related to the prime minister, called on Greek President Karolos Papoulias to order the formation of a unity government ahead of early general elections. “Bankruptcy is imminent,” she said. Earlier this month, Ms. Papandreou said she would vote for a new raft of austerity measures, but that it would be “the last time” she supported the government unconditionally.

“The current government has none of these necessary prerequisites. Today’s government policy is asphyxiating. Day by day the country is experiencing collapse, lawlessness and absence of government,” they added.

If Mr. Papandreou’s government falls, it would not be the first one in Europe to be toppled by the austerity demanded by European debt relief. In Ireland and Portuga,l governments that accepted bailouts from the European Union and the International Monetary Fund fell, and last month the Slovakian government fell over whether to participate in the European Union’s rescue package.

Niki Kitsantonis reported from Athens and Rachel Donadio from Rome. Stephen Castle contributed reporting from Brussels.


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