A surprise announcement by Greek Prime Minister George Papandreou that his government agreed to hold a referendum on the hard-fought deal to save his country from bankruptcy sent a wave of panic across Europe and the world.
The Greek cabinet early today (2 November) unanimously backed a plan, first announced by Papandreou on Monday, to hold a referendum over the rescue plan recently agreed by eurozone leaders (see background).
At the seven-hour emergency cabinet meeting Papandreou said that a referendum would offer "a clear mandate" for austerity measures demanded by other eurozone members.
His intention to hold a referendum took by surprise his closest collaborators. Even Finance Minister Evangelos Venizelos was reportedly unaware of any referendum plans. The eurozone plan to save Greece from bankruptcy requires no popular vote.
The announcement shook world markets, which saw their indexes plunge over the news from Athens.
Opinion polls suggest that Greeks are likely to reject the European aid package, no matter how the question would be formulated.
As EURACTIV Greece recently reported, mass protests in Athens and other cities clearly indicate that Greeks oppose plans to put back the country on track, based on austerity measures.
A rejection of the aid plan would amount to Greece's disorderly default and probable exit from the eurozone.
But more importantly, it would trigger a tsunami effect into the eurozone, hitting larger heavily indebted countries such as Italy and Spain, with some analysts saying it could spell the end of the euro.
Papandreou’s motivation to call the referendum remains unclear. His most immediate concern appears to be a parliamentary confidence vote Friday. Papandreou leads a slim majority of 152 seats in the 300-seat Greek parliament. He needs 151 votes to survive politically and to enact the referendum. At least six senior MPs of his ruling PASOK (centre-left) party, angered by the referendum call, said he should make room for a more legitimate government.
Several PASOK deputies joined the opposition in calling for a government of national unity, followed by a snap election.
Observers noticed a grim Papandreou at recent EU summits. Aides quoted by Reuters said he has been shocked by the deep corruption and special interests that dominate Greek society and has felt isolated from many in his party, still dominated by the populist ideas of his late father Andreas Papandreou.
In a rare televised address at the doorstep of the Elysée Palace on Tuesday, French President Sarkozy put on a long face expressing surprise and dismay by the Greek leader’s decision.
"France insists on reminding that the plan adopted last Thursday unanimously by the 17 eurozone countries is the only possible way to solve the problem of the Greek debt," Sarkozy said.
"To give the floor to the people is always legitimate, but the solidarity of the eurozone countries could not be exercised without each one consenting to the effort," he said.
Sarkozy, who holds the rotating presidency of G20, announced that he and German Chancellor Angela Merkel would meet with Papandreou today in Cannes to discuss how Greece would stick to its commitments.
The meeting would take place in the margins of the two-day G-20 summit on 3 and 4 November. All the European institutions and IMF chief Christine Lagarde would attend the meeting with Papandreou, Sarkozy said.
Sarkozy, Merkel, Lagarde, eurogroup President Jean-Claude Juncker, European Council President Herman Van Rompuy, European Commission President José Manuel Barroso, and an ECB representative will first meet at 5:30 pm, Reuters announced. They will then meet Papandreou and his finance minister at 8:30 pm.
According to Bloomberg, new ECB President Mario Draghi will be present at the meeting. Draghi started his new job yesterday and his Cannes appearance will be his first international one in his new capacity.