George Papandreou, the beleaguered prime minister of Greece, is facing a backlash at home and abroad against his plan to hold a referendum on a rescue agreement reached by eurozone leaders at a summit in Brussels last Thursday (27 October).
Before going to the public, Papandreou will ask Greek lawmakers to back him in a vote of confidence on Friday (4 November).
However, his government’s chances of survival narrowed further today, with the defection of one member of his centre-left party, Pasok.
The defection reduces Pasok’s majority in the 300-member parliament to just two votes.
The uncertainty was compounded further when six Pasok parliamentarians today called on Papandreou to resign.
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The referendum is expected to take place in January, which means that uncertainty about last week’s eurozone deal – which included a 50% debt cut for Greece – will continue for many more weeks. The uncertainty will test the robustness of other elements of last week’s agreement, especially the plan to build ‘firewalls’ to contain the fallout from Greece for other eurozone countries.
Many commentators have raised the spectre of a Greek default following the announcement, and financial markets across the world have dropped sharply in value (see panel).
Leaders of the EU’s institutions have so far restricted their public comments, but concern was evident in comments by several leading EU politicians.
Markets plunge on Greek referendum news
World markets are down sharply on news about the Greek referendum plans.
London’s FTSE 100 is down 3.42%, Germany’s DAX 5.72% and France’s CAC 40 5.28%.
Hong Kong’s Hang Seng closed 2.49% down and Tokyo’s Nikkei Average 1.7%.
The euro and commodity prices also dipped following last night’s announcement.
Banking shares were down sharply, amid fears about the impact of further economic problems on the balance-sheets of creditors. Société Générale dropped 14%, BNP Paribas 9% and Deutsche Bank 9%.
A statement from Herman Van Rompuy, the president of the European Council, and José Manuel Barroso, the president of the European Commission, included just a few terse sentences about the referendum, after a lengthy rundown of the measures agreed last week.
“We take note of the intention of the Greek authorities to hold a referendum,” Van Rompuy and Barroso said. “We are convinced that this agreement is the best for Greece. We fully trust that Greece will honour the commitments undertaken in relation to the euro area and the international community.”
The two also said that they talked to Papandreou by phone today and are in contact with other eurozone leaders.
Jean-Claude Juncker, Luxembourg’s prime minister and the chairman of the meetings of the Eurogroup of eurozone finance ministers, said: “The Greek prime minister has taken this decision without talking it through with his European colleagues. It is something that brings a great nervousness, that adds great insecurity to already great insecurity and therefore we need to see calmly how we will deal with this.”
In Germany, Rainer Brüderle, the parliamentary leader of the Free Democrats, the junior partners in the ruling coalition, called the referendum plan “strange” and suggested that the likelihood of a Greek default on its debt had now increased. “This sounds to me like someone is trying to wriggle out of what one has agreed to,” Brüderle said.
Alexander Stubb, Finland’s minister for Europe, said that the referendum will be about whether Greece should remain in the eurozone. “The situation is so tense that it would in principle be a vote on euro membership,” Stubb said.
Carl Bildt, Sweden’s foreign minister, said: “I truly fail to understand what Greece intends to have a referendum about. Are there any real options?”